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Good day, and thank you for standing by. Welcome to the Q3 2021 Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ms. Flora Wood. Please go ahead.
Thank you, Franzie. Good morning, everyone, and welcome to our Q3 call. Our press release and quarterly 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 call along with the presentation slides that have been added to the website at altiusminerals.com. Brian Dalton, CEO; and Ben Lewis, CFO, will both be speakers on this call, and then we will open it up for your questions. The forward-looking statement on Slide 2 applies to everything we say both in our formal remarks and during the Q&A. And with that, I will turn over to Ben to take us through the numbers.
Thank you, Flora, and good morning, everyone. Thank you for joining us. Q3 royalty revenue of $20.8 million or $0.50 per share is higher by 28% from the comparable year ago period and down by 5% from Q2 2021 royalty revenue of $21.9 million or $0.53 per share. Year-to-date revenue of $60.5 million or $1.46 per share is up 33% from the $45.5 million or $1.09 per share recorded for the same period in 2020. Q3 adjusted EBITDA of $16.9 million or $0.41 per share compares to $12.4 million in Q3 2020 and $17.7 million last quarter.The EBITDA margin, for the quarter, was 81%. Adjusted operating cash flow of $18.9 million or $0.46 per share compares to $7.3 million in the third quarter last year and $5.8 million in Q2 of this year. On a year-to-date basis, operating cash flow of $33.5 million is comparable to the $33.9 million reported for the prior year 9-month period, which had benefited from lower cash tax installments as a result of payment flexibility granted by tax authorities during COVID-19. Quarterly net earnings of $10 million or $0.24 per share includes $0.04 in mainly noncash adjustment items that are identified in the waterfall table and slides that you can find on our website, leading to adjusted net earnings of $0.20 per share. The Board of Directors has declared a quarterly dividend of $0.07 per share, consistent with the 40% increase that we announced at the end of last quarter. The dividend will be paid to shareholders of record at November 30 with the payment date being December 15, 2021. Now to the balance sheet and capital allocation. The cash position increased to $30 million at the end of Q3, after strong royalty-based cash flow generation and cash generated by net sales in the project generation business. This amount does not include the ARR cash balance of $69.8 million, which we consolidate in our financial statements as a result of our 59% ownership in ARR. The debt balance at quarter end consisted of $50 million outstanding under the term facility and $68.7 million drawn against our $175 million revolving facility. Scheduled principal repayments of $5 million were made during the quarter. Going forward, this scheduled amount reduces to $2 million per quarter in accordance with the recent credit agreement amendments that were negotiated in order to increase our capital allocation flexibility while also expanding our total available liquidity. We continue to be active during the quarter under our normal course issuer bid as well and our repurchase has been canceled 585,300 shares or 1.4% of the shares outstanding during the 9-month period ended September 30. That's my main remarks today. And now I'll turn it over to Brian.
Thank you, Ben. Thank you, Flora. Q3 was another good one overall for Altius but saw a strong rebound in royalty revenue, EBITDA and cash flow from a year ago levels as well as strong cash generation and sales of select equities from our project generation equities portfolio. We also had a lot of positive news flow related to our internal growth pipeline royalties. During the quarter, there were no worthy operational improvements at Chapada and strong royalty distributions related to our indirect IOC holdings. These were offset by slightly lower throughput at 777, annual maintenance shutdowns at several of the Saskatchewan Potash mines and at Voisey’s Bay, Long Harbour processing facility and an outage at 1 of the 3 power generating units at Genesee. Base metal prices continue at favorable levels. Potash market prices are at multiyear highs, with realized prices following but on a typical lag basis. Iron ore prices have recently retreated from all-time highs seen earlier in the year, however, remained at healthy levels on a historic basis, particularly with regards to our product exposures that attract significant purity-based premiums. Reading through the commentary and updates we have been receiving from our operators suggest that Q4 has the potential to be another very solid quarter.Chapada is expected to benefit from continuing strong mill throughput and copper recoveries. Annual maintenance programs have now been completed at the potash mines, and Nutrien in particular, expects to continue to ramp up production levels into prebuilt capacity in order to meet unprecedented global demand. Mosaic also continues to accelerate the ramp up of production from the K3 area of the Esterhazy potash mine to offset lost production related to the early closure of K1 and K2, earlier in the year, due to water inflows. Long Harbour plant maintenance has been completed, and the new Reid Brook nickel mine at Voisey’s Bay continues to ramp up and contribute to overall production levels. Genesee expects to be fully operational again before the end of the quarter. Altius Renewable Royalties experienced a tremendous quarter in its business development history. With the underlying GBR joint venture, we can ARR hold equally with Apollo, successfully deploying over $100 million in new investments. Its royalty portfolio has now grown to 16 projects, with collective capacity of more than 3.5 gigawatts of wind and solar generation. And it has announced that its expected time line for reaching the milestone of positive cash flow has been moved forward to 2022.We're picking up an increasing number of potential organic growth signals related to several of our operating pipeline royalties. And over the coming years, we are looking forward with great anticipation to host a further operator announcement that could represent meaningful growth catalysts for our business. To highlight a few, Lundin Mining has indicated that it will report upon its major ongoing near-mine drilling program at Chapada as well as parallel mine expansion studies over the course of the year. Champion Iron expects to complete and report in H2 next year on the results of its updated feasibility study for the Kami iron ore project where we hold a 3% title registered gross sales royalty. It is noted that this study is evaluating the potential for Kami to produce ultra high-purity product that could serve the noncoal-based direct-reduction electric arc furnace steelmaking subsegment, which it further notes to be gaining market share quickly around the world as emission penalties become increasingly factored into cost structures. AngloGold Ashanti reported during the quarter that it has discovered 2 potentially significant gold deposits at the silicon projects in Nevada, over which we hold a titan registered 1.5% NSR royalty. It is currently completing initial resource estimates and economic studies that it expects to report on in coming months, as part of what it is describing as a potential Tier 1 production opportunity in Nevada. That's actually worth repeating, potential Tier 1 gold production opportunity in Nevada. This team Royalty Corporation, a private company that we hold 12.6% cofounding interest in, hold several royalties that catalysts are developing around. It has a royalty related to NeoLithium’s large-scale Tres Quebradas lithium brine projects in Argentina that has recently delivered a positive definitive feasibility study, achieve pilot-level production of commercial-grade product and is the current subject of a friendly takeover bid by Zijin Mining. LRC also holds royalties over Sigma Lithium's Groto do Cirilo project in Brazil and Core Mining's (sic) [ Core Lithium's ] Finnish projects in Australia, both of which are spodumene-based lithium projects that have announced construction sales.Altius owns direct royalties relating to Tres Quebradas and Groto do Cirilo that were acquired under 10% co-investment rights with LRC. For those interested in learning more about LRC, I'd certainly suggest visiting the lithiumroyaltycorp.com site, and you can see just how much progress that business would be making. Adventus Mining recently published a positive definitive feasibility study for its copper gold and zinc-rich El Domo deposit in Ecuador and expects to report on project financing and permitting activities over the next several months. Here, we hold the title registered 2% NSR royalty.Speaking more broadly now, it is clear that inflationary forces are building in both the mining and power generation sectors. And while this is pressuring all operators, we believe it to be a strong overall net positive for our business. Our exposures are generally calculated at or near top line rather than marginal, meaning that we aren't directly impacted by inflating capital and operating costs, but are beneficiaries of any product pricing fees that the higher cost structures ultimately result in. This is beginning to feel quite reminiscent of what played out in the middle part of the prior market up-cycle. And that resulted in supply incentivization prices moving up sharply over the course of a few years. For example, we estimate that the copper incentive price would have been in the $120 range in 2007, by 2012 exceeded $3 a pound, but actual market prices following in along nicely. We have some charts in the opening part of our Investor Day presentation from earlier in the year that illustrates what happened back then for anyone interested. It's available on our website. Finally, several of you have been asking about our potential participation in a series of sales processes that have recently been launched relating to base metal focus for [indiscernible] portfolio. Altius is evaluating these opportunities, both technically and financially, and using our disciplined long-term per share growth focused investing approach. Can't say I'm overly confident that anything will resolve for us from these processes. But can say that one such source of attractive long-term growth and value that we have been able to identify and continue to regularly purchase, called Altius Minerals. Thank you. I'm happy now to turn it over to questions.
[Operator Instructions] Your first question comes from the line of Carey MacRury from Canacord Genuity.
Good morning, everyone. Maybe on potash, I know you've talked a bit about the lag on pricing. But if I look at sort of normalized volumes and obviously the potash price had a huge move in Q3, it sort of implies your Q4 revenue could almost double. Is that sort of in line with your expectations?
Yes. The past pattern holds. I mean, really, our realized price looks a lot like the prior quarter's market pricing. So the move in Q3, we'd expect that in Q4, maybe stretching in the Q1 next year a little bit. And then I'll just go on to say that -- what we heard from the operators on their call was that they'd expect to realize current market pricing, mostly in Q1. So again, same sort of pattern, current pricing -- about a 1 quarter lag, I think if you look at it that way. Over time, that's what's been playing out well for us. So yes, it should be a really barn-burner-type condition in potash.
Right. And then maybe on iron ore, obviously, a lot of volatility going on in the iron ore sector in the last month or a couple of months. Just sort of your thoughts on where you see iron ore, right now?
It's obviously come back, but from what. The key point here -- I mean that was -- that price for the midyear here never felt very comfortable, and we think it's healthy at that level. Where we're to right now is, I think is a pretty healthy overall level. There's -- obviously, there's a huge short position in iron ore right now, so I don't know how fundamental the price we're at today is. There's sentiment in market noise out there. One thing I would point out is that if you look at it on a year-over-year basis, prices are down if you're dealing with lower quality products, maybe down by 1/3 or so, year-over-year. But if you look at the higher range, they will say that $65 or $66 benchmark as well as the pellet premiums were actually up since November to November. It was something like up 14% for the $66 and up 18% on the pellet premium. So that bifurcation is part of the story. It continues. I think as you read the headline and the benchmark is what gets quoted, but it's not everything. Some of the pressures that on iron ore right now come from, pressures that are being imposed on the steelmaking industry to car emissions and a lot of that in China. And I think that's why you're seeing less negative impact or a relative outperformance in the higher end of the spectrum. It's just a market rationalizing the cost of emissions as part of the overall doctrine of iron ore making. But look, long and short of it is that, that was fun through the summer. If we looking at $300 pellet prices, but it was never realistic. This isn't the level at a healthy level. We'd expect still very strong yield against at least our purchase price. We can buy our shares at anything close to these levels. And I'd also go as far as to say that I think these levels are even less than this and would still be sufficient to incentivize growth, particularly for higher and higher quality product production. All good.
Okay. Great. And then maybe one last one for me and then I'll pass it on. But just it looks like Lithium Royalty Corp., a bunch of their projects are moving forward. Just wondering your thoughts there on how Altius ultimately will benefit from that.
Yes. I mean, I think it's probably a bit more visible to our shareholders just how well Altius Renewable Royalties is done, and it's out there and it's a public company, you can see it. But if there's another royalty company out there knew that, that has done at least as well, if not better, over the past few years in launching from a 0 start, it would have to be LRC, in my opinion. They really picked assets well. They took full advantage of the big sell-off in lithium beginning in around 2018, and we're able to put a lot of really good capital to work on good projects.And now the thing to fruit, lithium is obviously -- as a commodity is acting really nicely here, pretty much exactly as a function of the big burst in global e-sales that's underway. And investments are getting made in the projects that they bought royalties on. These are getting built. So as far as -- from a fees perspective, we're really happy with the investment, not really for us to make the call or just a shareholder in terms of what the ultimate path for LRC is, whether it maybe becomes the public company or many other type of corporate transactions are in store for, I don't know. But overall, as far as -- we made our decision with regard to lithium that it was going to be a better investment for us if we were to join with people that could focus on it on a very dedicated basis rather than trying to do it completely on our own. And we choose the team we did, and I'll give a big shout out to Ernie Ortiz, CEO there, and really couldn't be happier with it. So we're -- all I'll say about it for now is that we're extremely happy holders and probably willing investors in further growth there.
Your next question comes from the line of Craig Hutchison from CD Securities.
Just a follow-up question on potash. Just in terms of volumes, obviously, there are some capacity constraints here in the third quarter due to some maintenance issues. But any sense on kind of where the volumes are this quarter and maybe what we can kind of expect for next year? Kind of will we be back to kind of similar levels to maybe Q1 where they were quite strong? Or any sense there would be helpful.
Yes. I mean there's obviously a fair bit of seasonality in that business. We get supplied in the spring and again in the fall, so volumes can be -- or at least sales, they should say, can fluctuate around over the course of the year. And then it's been typical for many years for annual maintenance programs to be carried out in late summer. There was probably a bit more of that than usual. It might be a function of just how hard they have been in the line. They have been running for the cash a little while. But if I look to Nutrien as a proxy here, they're guiding to somewhere around, I think, around 1 million tons of overall production this year. So that does imply a pretty strong Q4. And they further commented that they've got the option established and ready to increase that plan even further 1 million tons next year. So there's continuation of a pattern we've been seeing for a long time, and we bought those royalties. One of the key appeals was that there was a lot of extra unutilized capacity that we bought and paid for that could just be ramped up. And we've seen that since we bought them a steady volume growth across the portfolio, which is certainly accelerating right now to the point that -- I can't tell you how many times I was shot down on that argument about how valuable that optionality was. And I heard back was all, "Well, potash was forever oversupplied, and that optionality is kind of moved."Well, guess what? We get eaten up pretty soon right now -- pretty quickly right now, probably sooner than maybe even the operators would have expected. To the point that it's got to be starting to be thought about when you consider how long capital investment takes in potash before new capacity is built. I think it's at current trajectory here that capacity, that extra factor could easily be consumed before you could, if you started today, have extra capacity built on. So I just really like the way that's playing out. We're looking forward to the day when we are announcing some of these operators that they're pouring more money into the assets to further grow out their capacity. Again, maybe that's a longer-term answer to what you're asking probably is more of a near-term outcome, but look, they're ramping up production. They've got the extra capacity, the only place in the world that does, and demand is off scale. The food stocks are -- our low farmers are making lots of money. So it's a perfect storm.
Okay. And just in terms of -- obviously, you got a lot of lines in the water on different commodities. But is there any commodity, in particular, you guys are focusing on and trying to increase your exposure to?
I think we cover the spectrum pretty decently. Maybe in the next big downturn, there might be some things we'll try to work harder on to add into the mix. But for now, I think you've heard me say this before, for this cycle anyway, I think our bets are largely lean, either in the form of a part of the portfolio or that's already cash flowing or all of the pipeline royalties that we're getting all this good news from right now. So we just let it evolve as we go here. But if you looked at our weighting of revenues like commodity, and probably even more importantly, if you looked at our waiting on a ad-basis, it won't look that far off of the mix of created value across the broader network commodity sector. So we feel like we're pretty balanced. We'll always tweak.
[Operator Instructions] Your next question comes from the line of Brian MacArthur from Raymond James.
Brian, I just wanted to follow up on your comment that obviously, you mentioned base metal prices are maybe not at the bottom right now. You're looking at potentially deals there, but not confident you'll get that done. Is that confidence based on, one, just I think prices are too high and the deals are difficult? Or is it, 2, in the overall scheme of balancing the company, obviously, ARR has done very, very well at deploying funds. I mean you own 59% of it; Apollo owns 50% there. So if they move forward. They need more funding. Is it an independent decision or is it part of balance in the overall portfolio? I mean, i.e., would you rather be putting more money into renewables now than even base metals?
Brian, I think we're -- I think it'd be fair to say we're open-minded around M&A opportunities that might come up. You're definitely correct in saying that from a metal pricing perspective, things aren't as attractive as they would have been, say, in 2015 and 2016 when we were really busy. But that doesn't say that you can't still find values, technical situations where you just have enough of the conviction around long-term growth that you can't do something. But I mean more broadly, what we've got to balance these days when we look at M&A opportunities is, a, what we believe is a really strong internal growth pipeline. So to the extent that, say, an M&A transaction required us to use equity, it'd rather be really tough right now because diluting that optionality. And the other factor is, it's all about assets. And I think there's a high bar for us right now in terms of anything we look at not being dilutive to quality of our own portfolio. So I guess it's a roundabout way of saying that we're open-minded. We're doing the work. It's very competitive out there. We know that. So I just wanted to sort of set a bit of a cautious tone as people hear about all these progresses and maybe getting excited about the big splashy M&A that -- we're going to hold our discipline here. We'll do our best, and meanwhile, it's the same for a lot of us. What we've got embedded in our own structure is we feel really good about. Again, our best is already in, and we think they're really strong.
And philosophically, putting more money into ARR from an Altius perspective, how do you think about that? I mean, obviously, you'd like to be self-funding. And as you said, it's got cash flow now, so it probably can be. But if shares get cheap there, do you want to see -- once you can, do you buy more shares there if that's attractive?
Yes, attractive. And I mean it is. I mean the trajectory there and the way that thing is evolving and growing adoption is taking place has been pretty remarkable. It would be remarkable to be part of it. To be quite honest, I won't go as far as to box Altius Minerals into investment decisions. But if something comes up and there's more capital needed at ARR, I think I'll say with a lot of confidence that at the Altius Minerals level, there's pretty open ears there.
Your next question comes from the line of Orest Wowkodaw from Scotiabank.
It's actually Orest Wowkodaw here. I know you've spent a lot of time talking about M&A at the asset level. I'm just curious, more bigger picture, whether -- just given it's become obviously so competitive to find new opportunities. I'm wondering if there's any -- if you see any potential opportunities at the corporate level, perhaps from an M&A perspective to combine with another, call it, mid- to small-sized royalty company, not only to diversify it further, but also just to put your market cap into a different sphere of, call it, investable options for institutional money managers. So I'm just curious if that's something that is -- if you see opportunities out there.
I mean you hit upon a great debate topic, I guess. There's certainly a common view out there that scale matters in terms of multiple expansions in those things. So there's an argument to think [Technical Difficulty]. It's a hard one for us to get our heads around, meaning any kind of corporate transaction [Technical Difficulty] an asset transaction would -- it still boils down to the quality that you're [Technical Difficulty] housed at the corporate or at the portfolio sale. So would they be dilutive to [Technical Difficulty] generate full cycle [Technical Difficulty] is there an embedded optionality, all the same kinds of questions going to due diligence and [Technical Difficulty] But I can pretty much tell you, as a company and as a Board, growth for the mere sake of [Technical Difficulty]. That doesn't make sense, otherwise. [Technical Difficulty].
Okay. And just if I could also ask, can you give us an update on where things fit with the litigation in Alberta with respect to the phasing out of coal power?
Yes, I can. So things have been a bit delayed in Alberta, mostly due to COVID. So I know there's a hearing coming up. It's not the end of this month, it's early next month. And so we had a decision from the sublevel to courts in Alberta. It's a master and another judge that hears this, who ruled against us in the litigation and so that caused us to appeal now to the court system. So we're actually in the court system right now. So that's coming up pretty soon. At least the next hearing of that appeal as to whether or not the lawsuit goes forward or not. Flora, maybe after the call, you could update. I think there's a section on our website that sort of updates progress and filings there. So maybe if you could make sure that that's updated for listeners.
Yes. I will do. The master decision is up there.
Is it. Okay. Yes, that masters decision has been appealed and it will be heard relatively soon.
Your next question comes from the line of Adrian Day from Adrian Day Asset Management.
Well, the last speaker took my standard question on the coal lawsuit. But let me also ask you, if I may, about the prospect generates the equity business, where you're doing a superb job. I've often said Chad should become a money manager, but -- you obviously had some sales, and I don't know if these were primarily based on -- were these selling? Can you tell us, were the selling an entire stake in specific companies? Or was it just trimming certain stakes? And then the second question on that prospect -- on that equity business would be, are you actively buying new stakes in smaller companies? Or are you just looking -- you got most of them through deals you did, but are you actively buying some in the market?
On the first part of the question, it hasn't been like sort of trimming across the whole portfolio. It has been pretty focused around a couple of names that might be a little less core for us just because we don't have, say, for example, an adjoining royalty interest or something. And it's using links as much as anything for us to boost in liquidity. That's as much as -- when you manage the size of the positions that we manage, that's a real big factor. So I'm not going to answer what the names are, but it's been fairly targeted. Yes, we are also in the market in certain cases adding to existing positions, adding other small positions here and there. But most of the ads, I guess, would be to names that we already hold and that we continue to have great faith in. And when we see market price -- market-based opportunity, we're active there. A few of these we're already filing on by virtue of the size of the position. So you probably see that we've added to pretty regularly, actually, to Origin. And we've added to Adventus, a little bit, during the quarter. So just incremental bits and pieces along the way here when we see real good opportunities in value.
And speakers, we don't have any questions over the floor. I would like to turn it back to Ms. Flora. Please continue.
Thank you, Franzie. And really want to thank everybody for dialing in. Great set of questions, and we'll look forward to speaking to you again after year-end results.
Thanks, everyone.
Thank you.
And ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.