Triple Flag Precious Metals Corp

TSX:TFPM

Earnings Call Transcript 2022-Q3

[Operator]

Good morning. My name is Rob and I'll be your conference operator today. At this time, I would like to welcome everyone to the Triple Flag's Third Quarter 2022 Results Conference Call. [Operator Instructions] Thank you.

Shaun Usmar, CEO, you may begin your conference.

[Shaun Usmar, executive]

Thanks very much and good morning everyone and thanks for joining us to discuss Triple Flag's third quarter results. Today, I'm joined by my CFO Sheldon Vanderkooy and our Vice President of Evaluations and Investor Relations, James Dendle. We're pleased to report solid results for this quarter. Our results from the third quarter were broadly in line with expectations and we're anticipating our full year GEO sales to be towards the low-end of our guidance range of 88,000 to 92,000 GEOs due principally to the impacts of delivery timing delays and a higher gold, silver ratio.

Gold equivalent ounces sold declined compared to the prior quarter, largely due to a lag in deliveries of silver GEOs from Cerro Lindo, which we will speak to later in the presentation. These timing impacts weighs on our revenues and GEOs for the year towards the fourth quarter and move some 2022 ounces into 2023. The shares of Triple Flag began trading on the New York Stock Exchange under the ticker TFTM during the quarter, which is the same ticker under we trade on the Toronto Stock Exchange. We enjoyed ringing the opening bell at the New York Stock Exchange on October 21st, a recording of which can be viewed through our social media.

This listing is another step in Triple Flag's value creation journey that we're happy to have achieved. As previously announced, the increase to our annual dividend from $0.19 to $0.20 a share took effect during the quarter. This has made possible due to underlying delivery of our portfolio and we believe it's important to return capital to our shareholders, as we continue to grow our business. A number of assets experienced positive catalysts during the quarter which a select few are listed here.

Cerro Lindo had strong silver and concentrate production, Northparkes reported record mill throughput during the quarter. Nevada copper announced the successful closing of a restart financing package for the Pumpkin Hollow underground mine. Exploration results at Fosterville continue to highlight the world class nature of the mine and the Tamarack project not only increased their contained indicated nickel by 98%, but we're also selected as a recipient of the first set of projects funded by President Joe Biden's bipartisan infrastructure law to expand domestic manufacturing of batteries for electric vehicles, highlighting not only the quality of the project, but the strong domestic demand for the metal producers.

On the corporate development front, our team remains extremely active amidst the backdrop of tough equity and debt capital markets for the mining sector at large. With our newly upsized credit facility a USD500 million and a USD200 million accordion, plus USD80 million in cash, we will continue to remain disciplined in our analysis and only transact to grow value per share in keeping with our strategic focus as a high-margin precious metals investment vehicle.

Our deal pipeline is the most interesting I've seen since the start of the pandemic in 2020 and I believe the market to thoughtfully deploy capital in pursuit of growth and value per share, while adding quality, scale, optionality and diversification to our portfolio in the short and medium-term is unusually attractive.

I'll now turn it over to Sheldon to discuss our financials for Q3 2022.

[Sheldon Vanderkooy, executive]

Thank you, Shaun. We had a solid third quarter realizing just over 19,500 GEOs, our adjusted net earnings of USD0.09 per share was identical to that of a year ago and our asset margins remained over the 90% level. Our cash flow in the quarter with over $25 million despite the headwinds of a lower gold price and a lower silver price in the quarter, showing the resilience of the streaming model. And in the quarter we paid aggregate dividends of $7.8 million, continuing to directly share our cash flow with shareholders.

Turning now to the next slide. The global economic environment has been exceptionally difficult the past 3 years, from the once in a century global pandemic and then a major land war, the economic and financial impact thus far included supply chain disruptions, reoriented trade flows, inflation, interest rate increases and foreign exchange disruption. Many businesses are struggling with supply shortages or input cost inflation. In times like these, the strength of the royalty and streaming model especially apparent as we continue to benefit from margins of over 90% despite the ever changing metals prices. Our model is very much a safe-harbor in difficult times.

Turning now to Slide 7. We see the benefits of the high margins being the robust cash flow. Our cash flows will vary with metals prices, but the combination of high margins and low overhead result a consistent and dependable cash generation. Cash belongs to shareholders and I am proud that we have paid out over $37 million in dividends since our IPO. Better yet, the current dividend represents only 30% of cash flow moving additional funds for reinvestment and the future benefit of shareholders.

Turning to Slide 8. Our cash balance continues to build being $83 million at quarter end. At quarter end, we also had $700 million of undrawn capacity on our revolving credit facility. Supported by our lending syndicate of leading banks, we extended the term of our credit facility to 4 years, providing capital certainty into 2026. We are constantly looking for opportunities to build shareholder value through new investments. This credit facility provides us with the capacity to accretively deploy additional capital in new investments for the benefit of shareholders. These are difficult times, but with hindsight it may well prove that this leads to opportunities to make investments that benefit shareholders for years to come.

Slide 9 highlights 3 very important aspects of our portfolio, being asset diversification, precious metals focus and a portfolio which is predominantly centered in the Americas and Australia. No single-asset accounts for more than 25% of last quarter's revenues and we have a number of cornerstone assets including Northparkes, Cerro Lindo, Fosterville and RBPlat, as well as a larger number of smaller assets, providing additional diversification.

In the past quarter, gold and silver accounted for over 90% of our revenues amongst the highest in the sector. And by geography, the country with the greatest contribution to our revenues was Australia with 5 assets contributing over 30% of our revenues. After Australia, our portfolio is predominantly located in mining friendly jurisdictions in North and South America. James will now review asset highlights.

[James Dendle, executive]

Thanks, Sheldon. As Shaun mentioned, our portfolio continues to perform well. At Northparkes record plant throughput was achieved in the third quarter and ramp-up of E26 Lift 1 North Cave progressed slightly ahead of schedule. At Northparkes, the shipment was delayed from the third quarter to the fourth quarter impacting sales during the period.

Thing in Australia, Fosterville delivered a strong performance year-to-date and Agnico Eagle exploration program continues to progress. Exploration drilling at Fosterville and the exploration leases that total over 118,000 meters year-to-date, step-out drilling in Q3 returned high grades, west of the Lower Phoenix zone and identified a new mineralized structure in the hanging wall of Lower Phoenix, visible-gold intercepts from the Cardinal zone included in and into followed 365.5 grams per tonne over 1.1 meters.

Importantly, based on the expected timing of mining high grade stopes, Fosterville is expected to have a strong fourth quarter. Cerro Lindo improved, produced 1.1 million ounces of silver and copper and lead concentrates during the quarter. Exploration continue to focus on extensions of known orebodies to the southeast of Cerro Lindo and at the Pucasalla target 4.5 kilometers to the northwest of the mine.

Cerro Lindo is producing silver and concentrate in-line with our expectations for 2022. However, a combination of higher gold silver ratios and changes in the quotational period associated with offtake contracts had impacted the timing stream deliveries by around 4 months on average. I'll discuss this further in the next slide.

At ATO, Mongolia production of gold during the quarter was up 28% from the second quarter to approximately 13,300 ounces. And as at 30th September, the total estimated recoverable gold between the pits, run of mine pad and leach pad is approximately 71,000 ounces. Our production in September rebounded from reduced production August, which was affected by an illegal blockade at the mine for a period of around 11 days.

After a good results in the first half of 2022, roll back in platinum had a more challenging third quarter. Operations during the quarter were interrupted by regulatory stoppages, supply chain and power supply issues resulting in a 6.2% decrease in 4E production for the third quarter compared to the same period in 2021. Due to the timing of concentrate production, smelting and refining, low Q3 mine global impact sales in the third quarter of 2023. Key operational focus remains geared towards reestablishing mineable face length, reduction of the tip-to-face tramming distances and improve trackless fleet availability and utilization. These measures are expected per RBPlat on track to deliver 230,000 tons per month from Styldrift.

As Shaun mentioned, Tamarack or Talon Metals with the recipients of the first set of projects funded by President Joe Biden's bipartisan infrastructure laws to expand domestic manufacturing of batteries for electric vehicles. The US Department of Energy will provide $114 million towards construction and execution costs for the battery minerals processing facility in North Dakota. Also during the quarter, Talon Metals updated mineral resource estimate for Tamarack and contained nickel in the Tamarack resource estimate has increased 60% since Triple Flag's investment.

Nevada Copper is making progress with Pumpkin Hollow, following the closing of the restart financing package with the completion of the second dike crossing. This provides access to high grades stopes of the Northeast zone, but as expected full-scale stope mining during the second half of 2023. Nevada Copper also secured the remaining long-lead items for the quarter open an underground jaw crusher, which is expected to be delivered in the fourth quarter of 2022.

Excelsior announced positive results from wellfield simulation modeling, which is intended to inflate the pre-existing mineralized flat fracture network in the wellfield to help CO2 gas bottles of scope. Excelsior expects field trials to commence in 2023subject to EPA approval. The EPA is currently processing Excelsior's permit amendment to allow for wellfield stimulation, which is expected to be approved in the first quarter of 2023 with field trials planned shortly thereafter. Closer to home, Young-Davidson continues to perform well and is on track to meet 2022 guidance of between 185,000 and 200,000 ounces.

Turning to the next slide. As previously mentioned, Cerro Lindo is producing silver in concentrate in line with our expectations for 2022. And in fact, it's producing more so in the last 2 quarters than any other period since the beginning of 2021. Due to changes in the quotational period associated with offtake contracts however, the timing of our stream deliveries has been impacted by several months on average. The chart shows quarterly production of silver in concentrate, but what's notable is the gap that's opened up in Q2 and Q3 between treatable silver, in other words, silver produced at the mine in concentrate after accounting for the stream rate and payability and Triple Flag silver sales. This is a recent development in the concentrate off-tech market, which we expect -- which we have reflected in our commentary on annual guidance.

We expect that gap to close as silver concentrates work through the system during Q4 of 2022 and Q1 of 2023. This is a short-term timing impact in contrast with the robust underlying operational performance of the mine.

I'll now turn the presentation back to Shaun.

[Shaun Usmar, executive]

Thanks, James. The streaming and royalty business model rewards its investors overtime as good portfolio investments deliver organic cash flow growth and additional upside when embedded optionality comes to fruition, new mines come into production, existing mines add life through the [ throughput ] and operations expanded throughput. Our business is relatively young when compared to our well-established peers, as we approach our seventh anniversary, a trailing cash flow yield compares amongst the best at around 10% based on the trailing free cash of around USD110 million and net invested capital of about USD1.1 billion.

We've outlined on this slide how a number of our key assets have created value in our short history before factoring in any valuation multiple on the NAV, which is typical to the sector. You'll see that investments in assets like Fosterville, Buritica, ATO and Cerro Lindo have either already recovered our full initial investment or a fast approaching that milestone and have benefited from reserve replacements through exploration, mine life extensions and expansions that have added considerable NAV versus our initial investment case.

You'll also see a mix of assets with shorter visible mine lives that have a good track record of reserve replacement complemented by cornerstone assets like Northparkes and RBPlat that also have ample opportunity for reserve and life extension beyond their already long lives of multiple decades, along with expansion potential and future exploration prospectivity. These complementary asset characteristics add up to a compelling long-life, high-margin, diversified portfolio that has delivered high growth in ounces to our shareholders over the past 6 years with more to come and that's before factoring in our ability to add growth through deals.

We expect more of the types of value addition captured on this slide in the future as our mining partners continue to run their assets well for their shareholders and build on their demonstrated track records. The highest and best use of our capital is in value-accretive investment additions to our growing portfolio. We have nearly $800 million in available liquidity, but have demonstrated resolving patients in our approach to deal making. There is not a quarterly or even annual cadence of activity driving our management team. It is necessarily driven by opportunity and the pursuit of growing value on a per share basis.

We invest through the commodity cycle and attempt to behave counter cyclically where large shareholders on this team have built a high-quality portfolio through 21 deals now over the past 6.5 years and have one of the more compelling deal pipelines ahead of us now since our founding in 2016.

Turning to sustainability. This is a core value for Triple Flag. Our scholarship programs at ATO, Northparkes and RBPlat continue to provide support for young people interested in careers in the mining sector. We continue to be carbon neutral for all our Scope 1, 2 and 3 emissions since starting this business by purchasing offsets. And finally, we want to highlight our target of 30% women on the board and 30% diversity in senior management by 2025, both of which are important milestones we look to achieve.

Everyone who follows the mining sector knows that this has been a priority for serious mining companies for a long time now and it's just good business in a capital-intensive, long-term investment arising business that has to strategically prioritize its privilege to operate. Similarly, it is sensible business practice to have an authentic, substantive approach to ESG practices in the streaming and royalty business. Our ongoing work in this area has been recognized as one of the finalists in the minds of money excellence and ESG awards, which will be decided in late November, the [ Gal ] event in London.

Turning to Slide 14. In summary, we delivered financials in Q3 that were broadly in line with expectations, as our portfolio continues to perform well against the volatile market backdrop, highlighting the quality and value of our growing portfolio. We're expecting our full year GEO sales to be towards the low end of our guidance range of 88,000 to 92,000 GEOs due to short-term market and timing factors, partially offsetting strong underlying portfolio operational performances, while we deliver on our ESG objectives.

Our balance sheet remains clean with no debt and nearly $800 million in available liquidity to transact on deals as we see fit. As major shareholders ourselves, our focus remains on disciplined deal execution and value creation, pursuing sensible and accretive deals in a patient manner rather than pursuing growth at any cost. I believe that the current market is setting up nicely for an acute need for knowledgeable patient, long-term capital in the mining and metal sector, providing attractive opportunities for us to pursue further value enhancing acquisitions. We are well placed in this environment to continue our track record of growing value for our investors. We sincerely appreciate the support and trust of our stakeholders and we look forward to providing further update soon.

Thank you. And with that, I'm happy to answer any questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Greg Barnes from TD Securities.

[Greg Barnes, analyst]

James, this quotational period adjustment issue at Cerro Lindo, it sounds like this is not just specifically related to Cerro Lindo industry wide, but what exactly has changed?

[James Dendle, executive]

Yes, it's a good question, Greg. I mean we're seeing it pop up quite a bit and like many mines, Cerro Lindo's offtakes are spread amongst numerous different offtakers, with contracts that are negotiated before the start of any given year. The offtake is -- contracts have different terms and also different points of delivery. So each contract allows some flexibility and how the quotational period is handled and the timing varies between those. The other sort of impact we see at Cerro Lindo is, there's some variability between the copper and the lead concentrates, the silver split between the 2. So again, depending on how much silvers in one or the other results in different QP. So we're still seeing the blended effect of a few different dynamics at play. And then also there's a timing of delivery, which has been quite stable at Cerro Lindo, but I think that's an issue that's sort of been popping up as well.

[Sheldon Vanderkooy, executive]

The only thing I'd add, Greg, this is Sheldon, is a lot of streaming contracts, what happens is the and I think you probably know this is that the streamer gets deliveries as provisional invoices and payments are made on the underlying offtake agreements. But our agreement with Cerro Lindo, our delivery entitlement is actually triggered off of the final invoice, the final step in the sales process. And so that might have a bit different impact than some other streaming agreements out there.

[Greg Barnes, analyst]

Okay.

[Sheldon Vanderkooy, executive]

But it is purely a question.

[Greg Barnes, analyst]

Okay. So I just assume that the QPs have extended out, if what or anything?

[Sheldon Vanderkooy, executive]

Yes and that's something I think we're seeing it extend out, Greg, to sort of the out of boundary of what we'd expect, yes.

[Greg Barnes, analyst]

Okay. Just an update on Pumpkin Hollow and Gunnison, do you expect any stream or revenue from either one in 2023 at this point?

[Shaun Usmar, executive]

Greg, we're not going to sort of comment on guidance for '23 at this point. I think the work we've done in the last quarter, which took quite some time to achieve, I think between that what the team on the ground has done through crossing the second dike, I think is all very positive for '23. So we'll look to provide very specific guidance. And I think if you look at the company's latest guidance there, we're there talking about crossing the third and final dike early next year, the work on infrastructure, it seems like sort of stuff that I think we've been hoping for with this investment for some time. So I think we're quite encouraged by the trajectory for next year.

[Operator]

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

[Brian MacArthur, analyst]

So can I just follow up on Greg's question. So are there any other -- I mean, Cerro Lindo sort of has 2 concentrate, but I don't know does ATO, I mean, Northparkes is delayed on a delivery, are these just both timing issues or are we going to get into the same issue to the same extent on things like ATO and Northparkes I guess would be the major ones, as you built up I mean, ATO has a fair bit of inventory too, right?

[James Dendle, executive]

Yes, so a couple of thoughts. They're all quite distinct, I mean, you're describing ATO as a gold operation where essentially that's been reagent supply that's been well telegraphed, which has been an issue in the past. As you know, ATOs actually, I think it's 28% up from the prior quarter. So they've -- you've seen them been able to leach. I think they've got over 70,000 ounces already mine crush and waiting to be produced. So that's in pretty good shape.

This is a very distinct feature linked to base metal concentrates and I think the only other timing disruptions that we've sort of referenced in there have really been distinct to an operation like Northparkes where they've been producing quite well. It's actually been more related to weather events and impacts on infrastructure and actual timing around period. So I think what this should point out to you is despite sort of several assets experiencing some timing impact, I think it probably hopefully gives you a sense of just the level of, let's say, headroom we built into our original estimates for -- when we thought about guidance. But Shaun, I don't know what you'd add, if anything?

[Shaun Usmar, executive]

I think that's all right. I mean just Northparkes, there's only 12 shipments a year and that's the issue we talked about there, but there's not that quotational period impact or at all, when they unship when they unload the ship at port, that basically triggers the delivery requirement to us. So it's not that same QP impact.

[Sheldon Vanderkooy, executive]

We don't have a similar QP impact anywhere else and that's right in the portfolio, just to be clear. Yes and just to comment on ATS specifically, Brian, there was a poor very late in the quarter. ATO produces now and so that you don't have that same refining time line that's one in constant cases with base metals. But just given how close the pool was the quarter end that effectively slips from a sales point of view.

[Brian MacArthur, analyst]

Okay. So just to summarize, really, the QP issue is really a Cerro Lindo situation in your portfolio, the others are what I would just call boats get delayed or shipments get delayed over the quarter and which can happen to anybody over an average time period basically, is that -- is that kind of the right conclusion?

[James Dendle, executive]

Then gets well put and to your point on the QP, I think it's a phenomenon in the market that we've seen really for the first time in our -- I think, in our 6 year contract history now.

[Brian MacArthur, analyst]

And just can I ask just of ATO, I mean, on the supply issue, obviously, you talked about supply chain. Right now, you're sort of indicating they're in pretty good shape going forward, so we'll start to liberate a lot -- start to sell a lot of that inventory there because I mean, the inventory there is quite high still?

[Shaun Usmar, executive]

Yes, I think that's right, Brian. But if you look at the latest results that came out yesterday, I think you'll see headlines like site level loan sustaining costs at over $800 an ounce. You will see that 28% up on the prior year, but you'll also see them reference the seasonality. I mean we're entering winter, obviously, just kinetics get impacted. They have installed a heat exchanger, I think this will be the first season where they're able to utilize that. But so you will see a drop off as a consequence of that, but they're up producing. And I think the release should hopefully give you a good sense of how they're doing.

[Operator]

[Operator Instructions] And there are no further questions at this time. Mr. Shaun Usmar, I turn the call back over to you for some final closing comments.

[Shaun Usmar, executive]

Yes, look, thanks very much. It's actually quite refreshing to have relatively few questions, I guess. Yes, thanks so much. As I said, fairly straightforward outside of timing for the quarter that has been a thematic. Despite that, I think you'll still see the highest -- second highest gold production in our portfolio, even with these delays that have been experienced in different areas. And I think the business as a whole continues to perform. We've got good firepower. We're very active on the deal front and thank you for your time and your questions. We're available if there are any follow-ups. So thanks, operator and thanks to those online.

[Operator]

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