Altius Minerals Corp

TSX:ALS

Earnings Call Transcript 2021-Q4

[Operator]

Good day, and thank you for standing by. Welcome to the Altius Fourth Quarter and Year End 2021 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. [Operator Instructions]

I would now like to hand the conference over to your today, Flora Wood, Director of Investor Relations. Please go ahead.

[Flora Wood, executive]

Thank you, Dee. Good morning, everyone, and welcome to our Q4 conference call. You saw our press release and our annual filings yesterday after the close on the website, you'll see the [ AIS ] later in the reporting period. This event is being webcast live and you'll be able to access a replay along with the presentation slides that have been added to our website at altiusminerals.com. Brian Dalton, CEO; and Ben Lewis, CFO, will both be speakers on the call, and then we'll open it up for the Q&A.

The forward-looking statement on Slide 2 applies to everything we say both in our formal remarks and during the Q&A session. 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. We had a strong year and quarter, setting new records across most of our financial measures. EBITDA margins of 80% overall were solid and driven by an 87% margin in the Mineral Royalty segment with some offsetting from higher public company costs and business development initiatives related to our Renewable Royalty segment. These renewable royalty related G&A costs are expected to be offset by a growing revenue profile as ARR's royalty portfolio matures and take on additional scale over the coming periods.

The other obvious offset here can be found in the growth of the market value of our interest in ARR. Brian will speak more about that later. It's also important to point out that when considering our EBITDA and cash flow margins, that G&A and other business development costs associated with the Project Generation segment are directly factored in the G&A, along on the other hand the CAD 16 million of cash net of new investments received on equity sales generated by the PV business were not included in EBITDA or cash flow from operations figures and are instead primarily recognized as other comprehensive income.

Looking at the table on Page 29 of the MD&A, reconciling earnings and adjusted earnings, you'll see we present each of the adjustment items on a pretax basis and 1 entry for tax deductions that aggregates all the tax impacts. If you have questions on the individual tax rates for different items, we'd be happy to address those in the Q&A or offline.

On a full year basis, adjusted earnings per share was CAD 0.77 compared to CAD 0.36 per share in 2020. The main adjusting items are impairments of CAD 8.9 million consisting of a Q4 CAD 6 million goodwill write-down as 777 approaches closure, and a CAD 2.9 million write-down recorded in Q2 2021 associated with the write-down on the Diamond Mineral property earlier in the year. Offsetting that, we had a CAD 7.6 million gain on a reclassification of the investment in Adventus and other adjustments for foreign exchange gains, gains on disposal of mineral properties and share purchase markets.

Turning to capital allocation. An additional CAD 35.3 million was invested in the GBR joint venture by ARR to fund its share of the acquisition of renewable royalty interest, while Apollo funded approximately $98 million during the year. We expect all future investments into GBR to be funded on a 50-50 basis between ARR and Apollo. We returned CAD 9.9 million to common shareholders in the form of common share dividends in 2021 and increased our dividend by 40% to CAD 0.07 per quarter. We also backed back 821,100 shares under our normal course issuer bid and it cost [ CAD 12.9 million ].

Repayments on our credit facilities totaled CAD 17 million during the year, leaving a year-end balance of CAD 170 million. Our balance sheet and liquidity continued to strengthen during the year. We ended 2021 with CAD 37 million in cash and cash equivalents or CAD 100 million when including the ARR cash as is consolidated on the balance sheet. The value of our project generation portfolio was CAD 56 million at year end. And our investment in Labrador Iron Ore Royalty Corp was valued at CAD 108 million, and our 59% ownership of ARR had a year-end market value of CAD 190 million, including the in-the-money value of share repurchase ones.

We have CAD 106 million in available liquidity relating to our revolving credit facility as well. Generally speaking, our near-term focus remains on seeing growth emanate organically through advances across our existing asset base rather than through M&A-type initiatives. The focus remains -- this focus remains in line with the long-term countercyclical investment strategies we've applied consistently and that are largely related to -- and that largely relate to the cost and availability of various competing forms of capital. As Brian will outline in his remarks, we've been receiving increasingly strong signals of late relating to various forms of organic growth that are developing within our business.

All that said, these are certainly uncertain times or clearly uncertain times and volatile times, and we remain well positioned and poised to deploy direct capital to an unexpected opportunity presented so far.

And with that, I'll hand it over to Brian to talk about the current environment and outlook. Thank you.

[Brian Dalton, executive]

Thanks, Ben. I normally really look forward to collecting my thought to this quarterly call and update, but this one comes with some mixed emotions. While we've been saying for several years that conditions were ripe to fundamentally grow our asset portfolio to really deliver, following now more than 10 years of widespread sector under investment and resulting fundamental undersupply conditions. What has now emerged to dramatically accelerate the supply-demand situation, we were glad you wish away if we could.

There are plenty of good reasons for the very strong prices that characterize our various commodity exposures today, but the current geopolitically driven exacerbation of the situation and not have the word good in any sense of the word [indiscernible] It is in fact horrible. As your business managers, it's not our role to feel embarrassed or apologetic by the higher expected revenue and investor interest that this backdrop has resulted in. Our position was obviously not in anticipation of predicated upon that certainly not any hopes of this type of benefit. It is our role to grow a strong long-term business on behalf of shareholders and other stakeholders that can continue to play a supporting part in bringing the world of natural resources to now more than ever realizes that it's so critical to relies upon. We can also humbly encourage you to join us as fellow shareholders and individuals, ensuring that those who are now being heard so directly. And the many more will be heard as the further negative humanitarian impacts play out.

With that said, let's turn to discussing the business. Fourth quarter and full year both saw new royalty revenue, EBITDA and cash flow record set at Altius. It was also an excellent year for our project generation business with several new equity positions in early-stage royalties added through real project sales, exciting progress made with respect to certain royalties within the long-term pipeline and strong net sales of equity reported. On a combined basis, royalty revenue in net PG sales totaled exactly CAD 100 million.

2021 results was transformational year for our renewable energy focused royalty platform. This is a business line that was ultimately born on the challenges we faced when much of the expected remaining lives of our Alberta coal power royalties were essentially expropriated by government regulation. We're therefore very proud, perhaps more honestly stated as relieved, and now the Altius Renewable Royalties emerged so strongly as the replacement business.

Following a successful early year IPO, steady progress in growing sector adoption and capital deployment, the market value of Altius is holding an ARR at the time of writing now totals more than CAD 240 million. This compares to CAD 62.5 million that we directly invested in establishing the business over its first few development years. No small measure of credit for this progress is acknowledged here to the Frank Getman led New Hampshire-based operating team for innovative thinking and remarkable work ethic. They're only getting going.

We currently see our business over the past few years in terms of 5 key pillars. These include potash fertilizer royalty, basin battery net royalties, [indiscernible] royalty, renewable energy royalty and last, but certainly not least, our original project generation business. Potash is critical to the world meeting its food sustainability needs as a result and directly higher agricultural leads per unit of farmland. This increasingly important role is therefore to help feed a growing world population, while limiting deforestation and other land conflicts. Our potash royalties benefited greatly from steadily increasing prices throughout the year that were largely a function of strong underlying global agricultural demand. We continue to experience normal lag effects and realized prices relative to spot market indicators that are typically of about a quarter in duration. So some of this benefit is still ahead. And meanwhile, prices have continued to increase during the current year.

Operationally, it was a more mixed year in potash and our overall attributable royalty volumes were actually down slightly, mainly as a result of the earlier than expected closing off of the K1 and K2 production areas of the Esterhazy mine due to increased water inflows. Potash is ultimately a salt that is highly soluble in water. This resulted in acceleration of the transition of mining at Esterhazy to the new K1 production area, a process as the operator of the mine is the Mosaic Company has recently stated is due to be completed by the end of the current quarter, and that will result in the resumption of historic annualized production levels.

Our other operator, Nutrien was able to increase production from its portfolio of mines as it continued to ramp up to the increased nameplate capacities we have pre-invested in several years earlier. It is noted that it expects further production increases during the current year at a time when obviously the world barely needs it. I'm sure most of you are aware that the other major global potash production areas are located in Russia and Belarus. And the majority of that supply has obviously become unavailable for exports. As a result, it is feared that some of the world's potash fertilizer requirements will go unmet this year.

A key takeaway from this should be to underscore just how important and valuable the potash mines Canada really has. Not only are these the most technically sound deposits in mine that the world has with tremendous remaining resources, they are also the most geopolitically stable. Considering as well the high per unit capital intensity involved with bringing on new potash production and the long required lead times from investment to realize production, we continue to believe that the risk-adjusted relative value proposition is perhaps unrivalled in the entire mining industry. We have no doubt that many more cycles of investment and growth are ahead, for which Altius shareholders will be full beneficiary with no share of the capital cost to bear.

Our basin battery metals royalties also performed strongly during the year, largely due to higher realized prices, a trend which has continued thus far in 2022. All key operations performed well during the year, marking recoveries from various COVID-related mechanical issues that were experienced in the prior year. Of particular note was the beginning of underground production within the Voisey Bay nickel copper Cobalt district from the new Reid Brook mine and progress towards the start of mining at the Eastern [indiscernible] mine, which is expected later this year.

Also, we note the achievement of a new annual throughput record at Chapada. 777 delivered well, however, it should be noted that as it is expected in the previous resources later this year. We've had lots of great news early in '22 relating to future organic growth of our basin battery metals portfolio. Adventus Mining was successful in negotiating a comprehensive mine finance package with strong industry players for the development of its copper gold rich El Domo deposit in Ecuador. It is currently working hard to complete engineering and permitting processes in advance of a final production decision. Feraltius holds a 2% NSR royalty interest, and it commends the team at Adventus for this latest achievement.

Lundin Mining operator of the [indiscernible] project also gave an initial indication of the results of this ongoing expansion study for the mine, suggesting that is closing in on the target of expanding 9 throughput levels to 32 million tons per year from 24 million tons per year currently. Perhaps even more importantly, particularly at extreme holder level was the recent announcement of a distinct new high-grade discovery on the property within land captured by our agreement. Initial drill results from the Salta target have returned wide intercepts of copper gold mineralization from the zone that begins at surface and remains open in all directions. Great indications thus far suggest mineralization that is considerably richer than that's currently being mined at Chapada.

Lundin has suggested preliminarily that as further work is completed and evaluate, it could consider options for trucking materials on the new deposits to the existing processing facility as well as for a new incremental mining processing centrally in the district. Lithium Royalty Corporation made strong progress during the year and included several new royalty financing completions as well as seeing excellent progress within its existing royalty portfolio. LRC remains private with Altius as a 12.6% shareholder as well as the direct minority co-owner of certain of its royalties. At present LRC portfolio consists of 18 royalties with 2 of these currently producing and 3 more in construction, including Sigma Lithium's Groto do Cirilo project in Brazil, Tres Quebradas project in Argentina and Core Mining Finniss project in Australia. LRC also holds a portfolio of equity and offtake positions that relate the company for which it is royalty finance. And finally, it has noticed that during the current year, it will consider various corporate level options that include a potential sale of public offering.

Turning to high purity iron ore, we had strong revenue growth related to our indirect royalty exposure to the Rio Tinto controlled IOC mining complex in Labrador, which produces high-grade concentrates as well as both blast furnace and direct reduction pellets. Benchmark iron ore pricing averaged higher year-over-year, but were also quite volatile, reaching record levels through the first half of the year before falling heavily through much of the second half. It began to recover late in the year and have continued to rebound strongly thus par in 2022.

The quality-based premiums and discounts relative to benchmark also continued and now multiyear pattern of increased widening, largely as a function of increased recognition of relative carbon output within steel making cost structures. High purity ore types are therefore becoming increasingly valuable because they result in lower carbon panels per unit of steel production since they require less net coal additions. With this factor, now in addition to the more traditional benefits related to higher iron ore content, reduce core procurement costs and plants efficiency benefit.

To put some of this in context, we've noted that over the past 3 years the average spread between low end or 58% iron ore and high-quality or 66% iron ore has increased from 28% to 56%. Production at IOC was lower in 2021, however, with the operator setting labor and mechanical availabilities as the main challenges. Its guidance for the current year suggests an improved production outlook and various recent debottlenecking or development investments are realized upon. It also noted that a new CEO has been hired to lead the operational improvements and overall strengthening of the operations, which we sense are becoming increasingly important to the offsetting of quality declines with the Rio Tinto's broader iron ore portfolio.

We are also looking forward to results in Champion iron ore related to its ongoing reengineering and rescoping the Kami project, which was originated by Altius and over which it holds a 3% GSR royalty. This project is located near to both the IOC mining complex as well as Champions existing Bloom Lake operations. One key element of this work relates to further increasing maturity levels of the iron ore concentrate can produce to levels that could allow us to serve the growing electric arc furnace-based steel making sector. Furnaces require no coal input joint steelmaking. Champions says that it expects to provide updated feasibility results for Kami towards the end of the year.

We've already touched on ARR to strong 2021, so not much more needs to be added there. Thus far in 2022 continues to be very busy with advancing new investment initiatives as adoption of the royalty model takes brother hold within that sector, but also expect to see a meaningful buildup of royalty revenues from its existing portfolio of operating assets and solid progress across many of its development state project interests. I would encourage interested shareholders and investors to review the details of its direct annual and quarterly reporting and commentary that was issued late last week.

Our project generation business is essentially our direct exploration arm to which we seek to organically grow our long-term royalty pipeline as well as benefit from exposure to the public though mining sector. What we do there basically is generate mineral projects and sell them on to typically junior mining companies in exchange for equity positions and royalties. The value of the junior equity portfolio increased to CAD 55.5 million at year-end from CAD 52 million at the end of 2020. This, however, does not include the further realization of CAD 16 million in net proceeds from the portfolio, which is the total of investment monetizations relative to new investments completed during the year.

I wish to commend the PGG for this performance, particularly since 2021 could not be considered a particularly strong year for the junior mining sector. Despite the general strength of metal commodities, the TSX central exchange was actually down on the year, in fact, underscoring how strongly the team performed with their management. Another key performance indicator at the PG Group tracks for the amount of exploration focused drilling that occurs across its equity and royalty portfolio. It's a bit of an intangible, but we think it may be the most important long-term indicator of optionality and free growth that really exists across our business.

In 2021, we estimate that 225 kilometers of drilling were completed and our preliminary estimate for 2022 currently stands at more than 300 kilometers. Definitely last, but certainly not least, we highlighted a very recent announcement by Anglo Gold Ashanti related to the silicon project in Nevada. Altius has a 1.5% NSR royalty on this project that relates to a broad state type agreement that resulted in the origination of the project several years ago. Annual Gold has announced a significant major maiden resource from the oxide portion of the central Silicon deposit, while noting that program mineralization is in an underlying sulfide zone and also that a further discovery at the northern target to the immediate south of central silicon has been made. It is further outlined in its published materials and an investment presentation that the district is representing a Tier 1 opportunity with its preliminary development strategy envisioning conservatively, more than 300,000 ounces per year of gold production for more than 15 years.

Well, that concludes my remarks. Sorry if it's a little lengthier than usual. But obviously, there's been a lot happening. And with that, I will turn it over to your questions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from the line of Orest Wowkodaw of Scotiabank.

[Orest Wowkodaw, analyst]

It's Orest from Scotia. A couple of questions, if I could, about the potash business. Obviously, we've seen pricing really accelerate recently on geopolitical events. Can you give us a bit of guidance on -- based on the ramp-up from Nutrien and the subsidiaries there, what kind of volume do you think this business, your share could look like in 2022 and '23? I mean, the business looks like it's been tracking around 1.7 million tonnes for '20 and '21. Just wondering how much upside there is to that number based on increasing volumes coming from Nutrien?

[Brian Dalton, executive]

Yes. Well, current operational capacity seems very likely to run at peak this year. I believe its somewhere around 50% remaining between that and nameplate capacities. I know work has to be done to make that operational, but I can't imagine there are enormous pressures with all types on the Nutrien to accelerate that now. The only caution I'd have and just trying to do a straight take whatever that differential is and apply it to our attributable revenue there is to make sure you account for the varying royalty rate that we have across some of the assets. I think with Nutrien were close to 5 of their 6 major mines, but we have varying interest by mine. So to the extent that volumes increase on a mine that we have a high royalty interest on will have an outsized benefit and the same is true inversely.

Last year, at our Investor Day, I think the presentation is still up on our website, we did get into quite a bit of detail around our -- how much capacity was left at each mine as well as explaining what our direct royalty exposure is to those mines. So that will be the best resource there at the for. But as far as the [indiscernible] it's anybody's question, it's obviously a very geopolitical one. But the world could certainly use every bit of it right now if they could bring it.

[Orest Wowkodaw, analyst]

So maybe I could ask it a different way. Assuming Nutrien ramps up to full capacity, what does that mean for you with respect to attributable volume?

[Brian Dalton, executive]

More or less 50% from here.

[Orest Wowkodaw, analyst]

Okay.

[Brian Dalton, executive]

Yes, that would be my math, I'd have to confirm, but that would be -- if you just look at current operational capacity relative to nameplate capacity, that's around what I think is remaining today.

[Orest Wowkodaw, analyst]

Okay. And then on the realization related to the potash price. You mentioned earlier that there's about a 1 quarter lag. And we've seen a fairly big kind of discount to the benchmark because the price have been rising. But can I assume that once the sort of price steadies out wherever that may be, that there should be, your realization should be at no discount to the benchmark outside of timing, this 1 quarter timing lag? Or is there some kind of, call it perpetual discount that we should think about the potash.

[Brian Dalton, executive]

No, not a factual discount, a perpetual lag is all you really need to think about. And in fact, if you go back to the period, say, 2016 or so, maybe through '18, I don't know, there's a stretch in our history of ownership where we're in falling prices. And in that case, we were actually realizing higher than spot. So it works both ways. It's just that, obviously, in the past 1 year, 1.5 year the move has been very dramatic and upwards. So I mean, I agree you look at spot prices and I don't realize freight. It seems like, wow, they really -- it's really discounted, but it's just how much the price moved in that period is really is.

[Operator]

Your next question comes from the line of Carey MacRury of Canaccord Genuity.

[Carey MacRury, analyst]

Maybe just another question on potash here. You had the big step up in Q4 again due to the lag. And I'm assuming we should see another big step up in Q1 here. And just given that Q1 is mostly we're almost through it, do you have a sense of maybe just more short term what Q1 potentially looks like relative to Q4 on the potash side? In terms of revenue.

[Brian Dalton, executive]

As far as like, again, we're trying to be a bit predictive around that, does actually mean the product we receive royalties on goes through a whole bunch of markets. And so really the calculation is based on an FOB price in Saskatchewan. So a ton sold under a long-term contract with more freight on it, won't realize as much as one sold next to the mine in Saskatchewan. There's a whole bunch of factors in there. That said, we tend to really closely follow Midwest U.S. prices. That's been consistent since we -- since we own them. It’s the product mix and where it goes in the world, just dramatically, I'm sure that would -- that correlation would break down. But for now, what we're seeing is that you take the average price of the last quarter for U.S. and the West, it tracks remarkably well. So I can't be any more leading than that.

[Carey MacRury, analyst]

That's fair. But I guess, just given that math, we should see a pretty reasonable step-up in Q1 or even more.

[Brian Dalton, executive]

There's no real reason to believe that our realized pricing in first quarter won't look something like the spot pricing in the previous quarter.

[Carey MacRury, analyst]

Okay. Fair -- maybe switching gears to renewables. Just in light of the Apex news, can you just comment a bit about that and just sort of how does that change the outlook for new renewable investment?

[Brian Dalton, executive]

There have been some shifts. We talked about this on the ARR call the other day. Again, when we got going with renewables, first, we were originally attracted in thinking that what we would be doing is financing sort of construction-stage projects with royalty finance and we weren't able to do much there because the competing cost of capital was just too low. But we did find good opportunity with developers who had a harder time. And there's been a remarkable shift there in the past year. So it's actually gotten quite a bit easier for developers to attract capital, and there seems to be huge demand from big players to buy their entire portfolio.

So obviously, it's -- they're during windfall times, but it's not super attractive for us as far as deploying capital. What's offset that ironically is that it's gotten tougher and more expensive for construction stage projects. And probably that's a function of a very quickly growing aversion to locking in and hedging prices. Their low cost of capital that was the backdrop when we got started was much a function of as anything else, the fact that they had everything hedged out, meaning that they could put pretty high leverage and they were very attractive to pension type major structure investors.

As they come off of that, realizing that prices really can only go in one direction for renewable power here and want more market-based exposures, it reduces the amount of leverage in one project. So more -- basically need more money has to come from the equity side of the ledger. And so that's what we're able to compete quite effectively. And so we're seeing a lot more deal flow for investment in projects that are either late construction or operational stage. So it's not -- I don't know, I mean, all these things can reverse again very quickly and we'll essentially just roll with the punches. But for the time being, that's the shift we've seen in the past year and that's essentially how we've responded. So again, I see more opportunity for near-term deal flow in later stage. And obviously, the benefit there is that it's more immediately cash flowing-type investment opportunity.

[Carey MacRury, analyst]

Okay. Great. And then maybe just one last one for me. I know this in the MD&A you talked about IOC and the potential to expand the mine life there. Just wondering if you can give a bit of color on what you're seeing there?

[Brian Dalton, executive]

I don't know if it's much about the mine life. They just opened up a new big area that's finished permitting that early last year. I mean, obviously it will incrementally add to the overall mine life. But as much as anything, my understanding is that it just brings in slightly a different rock hardness into the mix, so they can better optimize the overall blend going into the front end of the mill. So that's meant to have, obviously, yes, longevity benefits. But I think operationally it's made to be important too. There's a lot of resource ultimately up on that project. It might not all show as reserves, but if you just look at the geology and historic broader resource estimates, there's really no reason why IOC could run as multiples of its current production rate and still have a very, very long mine life.

And maybe we're getting into those conditions now with such increased emphasis on high-quality ores that becomes on the table that we haven't heard that from IOC directly, but it would seem quite logical impact, particularly if you consider that recently IOC -- Rio Tinto has started to use concentrates from the Labrador trough to blend some of the lower-quality material that's coming out of their Australian production. In essence, they're using Labrador material to make the worst part of the Australian production even salable. I think it has taken on a greater importance within the organization overall. But again, I'm waiting and speculating, but I don't think I'm being a logical either.

[Carey MacRury, analyst]

All right. Great. And congrats on our record quarter and year.

[Brian Dalton, executive]

Thank you, sir.

[Operator]

Your next question comes from the line of Craig Hutchison of TD Securities.

[Craig Hutchison, analyst]

My question is on silicon. You guys announced our -- AngloGold Ashanti announced a main resource for the project of around 3.4 million ounces. But my understanding is also your royalty also encompasses North and [indiscernible] as well. Any sense on what the sort of total resource for that package is at this point? Or is it just too early?

[Brian Dalton, executive]

Well, I mean there's things you can compile, I don't know what categories that they've been, but for which we used to talk about [indiscernible] total resource in the 2 million to 2.5 million ounce category. We've obviously seen, what, 3.4%, I think, announced for Silicon Central, and that's just the oxide part, that doesn't take in sulfide zones beneath that Anglo has already said that they've discovered. And probably the bigger mystery factor is the Merlin target, which is south of central silicon. We've got a number in our mind for that with our number.

But all we've done, I mean the Industrious is debt deposit essentially straddled the property boundary to the south. And in fact, very much seems like it goes on to land held by core. Within there's a narrow strip in the middle that was held by Corbus and Corbus did publish results. They drilled a section right across that for any geologists that one to has to pond here, you can start to look at the drill pattern that Anglo has across the Merlin zone and do some extrapolation up from the result that Corbus provided for the Lindestrip section. And yes, we have a guess, but I don't think it will be all that long before we actually get real numbers. We think it's meaningful.

[Craig Hutchison, analyst]

And so obviously, it would be a very meaningful royalty to you guys. Would you guys consider kind of monetizing that in favor of base metal royalty at some point this year? Or is it just too early again on that?

[Brian Dalton, executive]

It's early for that. I mean, we've got a bunch of options there, first and foremost, being just letting things play out and let the full scale of the resource become better understood. It's pretty early days for what looks to be a major new district discovery in Nevada. And presumably, that revenue contribution could be meaningful to us. I mean, I know we are going with this, it's unlikely that a royalty on a major gold discovery in Nevada would be valued highly within Altius, it would be within say a pure precious metals company. There's over alternatives as well, we could liberate it from Altius Minerals as the more pure-play vehicle, sort of ARR-like. Sure, we consider any kind of creative structures if we can capture that average between how which types of assets might be valued with the Altius and other companies. But no real hurry there. There's lots of fun to be had just watching this play out for now.

[Craig Hutchison, analyst]

Okay. Great. And this is the last question for me. Just in terms of within Royalty Corp, I think you mentioned in your opening remarks potential sale or something this year? Or any additional color on what could kind of crystallize value for that asset would be appreciated.

[Brian Dalton, executive]

Yes. I guess it's just part of sort of normal course exploring of option, but LRC is amongst its options here considering potentially selling the business or IPO-ing, and I know there's been a lot of street interest in that IPO concept. So I don't know if it happens and we're 12.5% shareholders, so it's not our call. But to the extent that it does, it could be quite a crystallizing event for us. Obviously, that business since we invested has undergone remarkable growth and has also benefited from a complete new outlook and what the long-term price of lithium should be. So if it were -- valuation were established and crystallized here, we'd expect to be pretty happy about it.

[Operator]

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

[Brian MacArthur, analyst]

I'm sorry to do this. If I just go back to the potash because you made a comment about capacity effectively, which I think is referring to the entire capacity of this system. But as I think about this going forward, obviously, the biggest royalties on Rocanville, Esterhazy, [indiscernible] are lower. So that 1.7 million tons that [indiscernible] should I assume -- am I thinking of this right that at currently utilization of Rocanville is quite high, you get a big royalty there. It will probably go up a little bit to do a big tick there. Then K3, which, again, you have a pretty good royalty on there. So that growth rate will probably be a little higher in the near term from those big mines before the capacity gets filled at the smaller mines where you get a lower royalty? Is that kind of the right way to think about it?

[Brian Dalton, executive]

Yes. But there's more factors. 2 years since we've owned these royalties, we actually saw a higher growth rate in attributable volumes than the total network, say within Nutrien and Mosaic were indicating it was because there was outsized growth coming from Rocanville and Esterhazy, which are obviously the low-cost mines in the system. So it's logical that they get filled out first. So it was an outsized relative benefit to us. To the extent that they completely fill off and you're going down the food chain into higher cost assets down the line, that will -- we will probably even lag the overall portfolio production rates, growth rates of the operators. But there's more to it than just filling up one mine, its capacity because it's the lowest cost and then moving on to the next and next. I mean there's a whole lot of things being managed, including different product types, labor availability, equipment availability. I think it's a much more delicate management act within -- for those portfolios overall.

So look, I think the safe way to do it is to just begin look at the nameplate capacities in the mine compared to how much of that has been commissioned as operational. And the delta there is sort of the opportunity set that's been pre-invested and funded. And you -- again, I tried, I don't worry, but it's impossible, I think to actually really be that predictive here, there's just so many factors. So I just look at it now that over time I'd expect that nameplate capacity to fill out why wouldn't it be invested in that for a reason. I tell you what I look more towards there now is when I look at the pace at which volume has been growing within the portfolio, we're not far away from all that nameplate capacity potentially being reached, as I think most people think and recent events, notwithstanding that, quite frankly we can use all of it right now as a world, we're probably going to -- we're going to be talking about [indiscernible] his year because of this to.

But the other thing to remember here is that you can't just then decide, oh, okay, well, we'll go ahead and we'll make an investment to further grow out the capacity. We're getting up against nameplate now and now we've got to go again. We don't make that decision with a view to having the capacity available in 6 months. It's more like 7 or 10 years. So these guys have got to start thinking about if the goal is to hold market share long term or grow market share long term, they soon get to start thinking about this. Maybe even now, again, otherwise there will be a gap. Again, if that capacity is filled out and we're projected to fill out completely in 7 years, you're probably already at the limit, if not too late.

[Brian MacArthur, analyst]

Great. That color is very, very helpful. And maybe just switching to a couple of other things. Is there any update on the cost litigation? I assume even in this world, you don't assume that's coming back or anything, but I don't know, maybe that option still is there, but any update there would be useful.

[Brian Dalton, executive]

No, it's very much alive. So we had a hearing, I think it was in early December. That was the challenge. There was a lower sort of judiciary body that originally granted -- there was an application made by the government to have a draw out essentially, which was in this lower judiciary body granted, which we, of course, appealed. And so that was heard in January or December. We're still waiting on the outcome of that. For anyone who's really interested in this sort of stuff, it is also important, I think right now to be tracking a current Supreme Court case that's underway. It's been heard and waiting for results on it. But it really deals with this issue of what constitutes an effective expropriation or regulatory expropriation. It's been kind of an open issue in Canadian law for some time. And cases has gone through that should probably settle things once and for all. And I expect our fortunes are really tied on what the result of that might be, but still very much alive. We believe these were going from a, and we aren't pursuing compensation for it.

[Brian MacArthur, analyst]

No. Sorry, that's very helpful. But I also just -- I mean, there's no chance in your view sheerness that something might come back given the situation the world is getting us in with the price of other commodities, alternatives.

[Brian Dalton, executive]

I mean technically, Genesee, they don't -- they're on a path right now to convert to gas, and it's actually well in advance of the regulatory deadline that they have stopped burning coal, which is 2029, 2030, but they've invested more proactively around that [indiscernible] and so they took the compensation money they were granted by the government, and they've invested in conversion. Genesee is in the process here and it's essentially complete. But I don't know exactly [indiscernible] that they've maintained the optionality to keep flip back to coal if conditions warranted, I'd have to get back to you a little bit on that.

But I would note that while there's been some move in the price of gas, because I mean that's really the -- the pure economics that you're factoring in here is going to be the cost of the mining my coal, what's the carbon tax on top of that relative to what's the cost of buying gas, some of the carbon tax on top of that. That's the pure economic equation. But the gas prices are certainly up in Alberta during the 5-ish kind of range right now. But we're not talking about European type gas prices here as a competing fuel [indiscernible] Well, I was just looking for another optionality in the portfolio that nobody thinks.

[Operator]

Your next question comes from the line of John Tumazos of John Tumazos Very Independent Research.

[John Tumazos, analyst]

This is John Tumazos as I hope it was me they invited to make a question. Hope you're all well. As long as they don't curse me out, I don't care what they call me. In terms of the iron ore assets in Eastern Canada, as mining people we might focus on the reserves and resources, but the logistics are also important. How much is the slack capacity on Rio Tinto's railroad and the [indiscernible] to support potential expansions at IOC or the Champion assets with [indiscernible] the North project and other things being explored. How is the geology is good, how good is the logistics?

[Brian Dalton, executive]

Yes, lots of resource there. From a logistics point of view, rail is not a problem. I haven't really looked at that in a while, so I can't give you exact numbers, but I'm going to say that you could easily double total capacity from the region right now and probably with some modest investment in sidings, go way beyond that. Ports, you've got the multiuser port that has extra capacity on it and it's got lots of room for further expansion. Rio obviously has its own port facility. If there's a near-term constraint and this might surprise some people, it's probably hydropower. These are some capacity in room there. I know that there was a block that was allotted for Kami when it was previously brought forward. For that kind of mega-scale expansion or anyone who's familiar with the region and to how much gets talked about in terms of hydropower and politics and projects and everything else to hear that, it actually, that is the limiting factor will probably come as the shock. But today, I would say that's it.

[Operator]

Your next question comes from Adrian Day of Adrian Day Asset.

[Adrian Day, analyst]

My questions have already been answered. I'm really sorry, I didn't have to take this out of the queue, but thank you.

[Operator]

I'm showing no other questions at this time. I will turn the call back over to Flora.

[Flora Wood, executive]

Thank you, Dee. And I'm asking a couple of questions from shareholders who couldn't join the call because of time fill differences. And first one, Brian, is in the MD&A, in the capital allocation resection you mentioned of $5 million investment convertible loan that's made to inverting, which is a carbon credit solutions company. And he's asking how you see that opportunity? Is it potentially a large opportunity?

[Brian Dalton, executive]

I don't know if the particular investment represents a large opportunity, but we have been studying what's going on with the, I guess, the voluntary and as well the interaction between the voluntary and regulated carbon markets. And I don't really think there's much left to debate about the scale that, that market overall is likely to take on. In fact, in terms of total traded dollar value, I think it's going to arrive from some of the big mine commodities of the world before too long. So it's interesting to us. And obviously that market and its dynamics have lots of impacts on our business.

I mean, you only got to think back to what we went through with the coal and obviously our direct involvement now with -- in the renewable space, it would be silly not to be thinking about that. So we've made this investment, what we think is a really good, strong technical group. In many ways, to help motivate our ongoing learning, but it is a market more broadly that we're interested in because we think it could emerge as something that very easily fits and dovetails with our other interests. But it would be early days to go and try to say that it's the next ARR or something like that. It's a bit more exploratory at this point. But we really like the team there. It's in an early stage.

[Flora Wood, executive]

Thanks, Brian. That's actually a good reason because the other question is about ARR, and it's about the upside in the royalties. So we've got U.S. renewables investments. The shareholders pointing out that there's been a lot of news about bitcoin and crypto mining with renewables being the power source in Texas, for example. So wondering about the scope of our royalties would encompass that. Cool. I know in the presentation I've done with Frank, he often joked that if they sold hunting licenses on the properties we'd -- our definition of growth royalty would capture that.

But probably the way I think about that question more broadly is one of the huge challenges in renewables in the U.S. right now is a real backlog in terms of getting interconnected to grids. There's just so many of these projects trying to connect that it is quite a current bottleneck. And so what you're seeing is a response to that, in some cases is kind of a trend towards more behind the meter type development. In other words, the wind farm is right there, but it can't connect to a grid. So the response then is Amazon or somebody builds a data center right next to the wind farm and they become more directly integrated and that way you can get away somewhat from the whole interconnection challenge.

So to the extent that, that direct customer, the dedicated customer, I suppose ended up right on the royalty lines, maybe. But I don't think that's a real practical way to think about it. It's probably more likely that [indiscernible] or a data center would be located somewhat distally from the site. So our definition of growth revenue relates directly to the sites. The physical footprint. Thanks, Brian. Dee, I think you got one other question there.

[Operator]

We have a question from Peter Graffy of -- he is a private investor.

[Peter Graffy]

Brian, am I live?

[Brian Dalton, executive]

Yes.

[Peter Graffy]

Brian, I got on the call just a little bit late. So I don't know if you touched on this, I apologize if you did. But you keep building up this cash. I saw you retired about 2% of the stock last year. What's the official word, if there is an official word on your plans to continue that program buying back shares?

[Brian Dalton, executive]

We normally may tackle sort of new direction or any kind of adjustments we're going to make to broader capital allocation. So we're scheduled for that around the time of the next quarterly meeting with the strategy session. And but generally speaking, the broad categories are what do we see in terms of near and longer-term growth, how we feel about leverage levels. And that might be a bit more topical this year because I guess who knows what's going to happen with interest rates in this environment. And obviously shareholder capital returns, so regular dividends, special dividends, buybacks, all of those things are in the mix.

For sure, one of the priorities, though, longer term is going to be just further strengthening of the balance sheet and being ployed for a longer term opportunity. But I'm sorry, I don't really -- I can't really like specifically say we've got this much allocated to date, and we're going to buy this many shares back. And quite frankly, our buybacks are not really like that. We don't just say we're going to put this much money into the buyback over the year. We tend to look at it a bit more opportunistically. We almost look at our buyback in the same way we look at M&A -- so we're -- when we buy shares of Altius, we look at it is that we were buying the whole company. Anyway, is stayed with us for a little bit on that and towards May, in the May period and we'll have a lot more clarity on what we see as near term.

[Peter Graffy]

From a shareholders' perspective, I like the fact that our interests are aligned with your interests, so keep up the good work.

[Brian Dalton, executive]

There you go. Well, as long as those interests are -- have both short term and medium term and long-term interests aligned, we're all going to be happy together.

[Operator]

Your next question comes from the line of Carey MacRury of Canaccord Genuity.

[Carey MacRury, analyst]

Brian, just had a couple of follow-ups here. First, just on the Fairfax warrants obviously in the money here. Can you just remind us what the trends around those warrants are? Is that something that they would exercise or with the expiry date, etc.?

[Brian Dalton, executive]

They can exercise at any time, quite frankly, the way the original agreement, so that would have been back in CAD 17, the strike price on the warrants is CAD 15. I think we did the stock is just under -- and yes, so it's a CAD 15 exercise price. I think the way it was meant to be it would expire that would expire in April of this year, except in the event that the share price is CAD 24 or higher, in this case they would naturally extend for 2 years.

[Carey MacRury, analyst]

Okay. So you're currently seeing about CAD 25 so...

[Brian Dalton, executive]

Exactly. From the perspective of that, I'm just obviously think that it's worked out so well for Fairfax and remind everyone that the main part of that deal was a CAD 100 million preferred investment that Fairfax made, which ultimately resulted in buying our position in Labrador half of the potash and seed funding the renewables business. So if ever there was a win-win deal in the world that's going to start to feel like it. And I would also say that if Fairfax were to exercise warrants, at least every indication I've had in the past that the goal there ultimately would be just to slide into the position of long-term shareholder.

[Carey MacRury, analyst]

Thanks. Great. And then maybe one other question. Your market cap is pushing on CAD 1 billion now. Have you guys looked at the potential for like index inclusion, given the larger size or is that something like -- is there an opportunity there that you look at?

[Brian Dalton, executive]

Actually, a good point I didn't raise in the next quarter because it was kind finally when it happened, we didn't expect it, but we recently were added to the Canadian dividend, the [indiscernible] index, which was kind of neat. I don't know, Carey, to be honest, with I haven't really tracked what the inclusion mechanism there. And I don't think we actually get to have much influence or say in it. But you may be right, maybe CAD 1 billion could be a magic number for some of those sites of inclusion, but there would be people in your industry probably better able to speak to that than me.

[Operator]

I'm showing no further questions. Are there any closing remarks?

[Flora Wood, executive]

That's great, Dee. I would really like to thank everybody for joining, the questions were great, and we look forward to talking to everybody shortly in Q1.

[Brian Dalton, executive]

Thanks, everybody.

[Operator]

Thank you. This concludes today's conference call. You may now disconnect.