Triple Flag Precious Metals Corp

TSX:TFPM

Earnings Call Analysis

Triple Flag Achieves Record Production and Strong Financial Growth

In Q3 2024, Triple Flag Precious Metals reported record production of nearly 30,000 gold equivalent ounces (GEOs), putting them on track to meet their production guidance of 105,000 to 115,000 ounces for the year. Operating cash flow per share surged over 70% due to strong production and gold prices. The company anticipates production will rise to between 135,000 and 145,000 GEOs by 2028. Furthermore, their robust balance sheet includes only $11 million in net debt and $690 million in liquidity, positioning them well for future growth and shareholder returns.

Triple Flag's Strong Performance in Q3 2024

In the third quarter of 2024, Triple Flag Precious Metals reported a strong performance with record sales of nearly 30,000 gold equivalent ounces (GEOs). This achievement is significant as it keeps the company on track to meet its guidance for the year, expecting production to reach the upper range of 105,000 to 115,000 ounces. The high-grade contributions from Northparkes played a crucial role in this success, bolstered by rising gold prices and stable margins despite inflationary pressures.

Substantial Cash Flow Growth

The company saw a remarkable increase in operating cash flow per share, which surged over 70% compared to the previous period. This robust cash flow generation reflects not just the record production but also the successful application of the streaming model, demonstrating its effectiveness in delivering value to shareholders.

Operational Highlights and Strategic Developments

Over the last quarter, Triple Flag achieved several key milestones: Cerro Lindo showed significant production growth, Orla Mining increased its guidance for Camino Rojo, Montage Gold secured financing for the Koné project, and Westgold revealed exciting exploration results at Beta Hunt. These developments illustrate the strong operational foundations upon which Triple Flag is building its future growth.

Financial Stability and Growth Outlook

Triple Flag finished the quarter with a net debt of only $11 million after drawing over $60 million from its credit facility for acquisitions. This minor debt, coupled with almost $690 million in available liquidity, positions the company strongly for capital deployment opportunities. Looking forward, the focus remains on maintaining disciplined capital allocation while ensuring sustainable returns for shareholders.

Diversified Portfolio and Future Prospects

The company's royalty and streaming portfolio is well diversified geographically, with about 80% of revenues derived from the Americas and Australia. Notably, approximately 30% of total revenue is sourced from silver, amplifying exposure to strong market conditions for both gold and silver in the foreseeable future. With projections to achieve 135,000 to 145,000 gold equivalent ounces in production by 2028, Triple Flag's future growth outlook appears promising.

Successful Acquisition Strategies

The recent acquisition of royalties through the Maverix transaction in 2023 continues to yield positive results. The company's strategy includes focusing on organic growth and opportunistic acquisitions that align with enhancing shareholder value. A robust pipeline for future transactions remains intact, with anticipated deal volumes ranging from $100 million to $300 million.

Exploration Success and New Opportunities

Significant exploration success was reported at the Beta Hunt mine, where Westgold announced a major discovery in the Fletcher Zone, which could potentially double the current resource base. This discovery demonstrates the inherent value of Triple Flag's streaming and royalty business model, as it creates opportunity for additional gold production without incurring extra costs.

Commitment to Shareholder Value

Triple Flag's management, largely composed of significant shareholders, emphasizes a commitment to maintaining and enhancing shareholder value. The alignment between management's goals and the interests of shareholders is evident, leaving them optimistic about the company's trajectory as it heads into 2025 and beyond.

Earnings Call Transcript 2024-Q3

[Operator]

Hello greetings, and welcome to the Triple Flag Precious Metals Q3 2024 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, I would like to turn the conference over to Sheldon Vanderkooy, CEO. Please go ahead.

[Sheldon Vanderkooy, executive]

Thank you, Jeremy. Good morning, everyone, and thank you for joining us to discuss Triple Flag's 2024 Third Quarter Results. Today, I'm joined by our Chief Financial Officer, Eban Bari; and our Chief Operating Officer, James Dendle.

Triple Flag delivered another strong performance in Q3 with record sales of nearly 30,000 gold equivalent ounces. This has resulted in another record quarter for Triple Flag and places us firmly on track to achieve our 2024 production guidance of 105,000 to 115,000 ounces. We now expect to achieve the top half of our guidance range. The high-grade open pit material from Northparkes continues to be a key part of the 2024 story as Northparkes continues to be a strong contributor.

I'd like to highlight our growing cash flow per share. Operating cash flow per share increased over 70% as compared to the prior period. This is due to record production, record gold prices and stable margins insulated from inflationary cost pressures. The streaming model is working as it should for the benefit of our shareholders. Our portfolio has also achieved several milestones over the past 3 months. These include the following: first, Cerro Lindo delivered robust 2024 production year-over-year. Second, Orla Mining increased its production guidance for Camino Rojo for the second time this year. Third, Montage Gold fully permitted and financed the Koné project to production. And finally, Westgold announced exceptional exploration results from drilling at the Fletcher Zone of Beta Hunt demonstrating meaningful expansion potential for that mine.

Triple Flag acquired its royalties on Camino Rojo, Koné and Beta Hunt through the Maverix transaction in 2023, which continues to pay dividends for Triple Flag shareholders. Towards the end of the third quarter, Triple Flag was added to the S&P/TSX Composite Index, which brings exposure to a broader investor base as well as greater liquidity and trading. Looking ahead, Triple Flag's growth profile remains strong and well positioned to deliver long-term value for our shareholders. Our production is expected to be between 135,000 to 145,000 gold equivalent ounces in 2028.

With that, I'll turn it over to Eban to discuss our financial results for the third quarter of 2024.

[Eban Bari, executive]

Thank you, Sheldon. As noted, we have the strongest quarter yet with the portfolio producing nearly 30,000 GEOs, a new record for the company. This puts Triple Flag right on track to achieve our 2024 sales guidance, as Sheldon just confirmed. As a high-margin royalty and streaming business, these record volumes have translated to record levels of adjusted EBITDA and operating cash flow per share.

Lastly, I'd like to comment on the balance sheet. We exited the quarter with a small net debt position of only $11 million, following third quarter drawdowns on the credit facility of over $60 million for the acquisition of the new streams with Allied Gold and an additional royalty on the Tamarack project. This clearly demonstrates the robust cash flows generated by the Triple Flag business.

Our cash flow outlook combined with nearly $690 million of current available liquidity gives us the financial capacity to deploy future capital for future per share growth as well as deliver high shareholder returns.

Moving ahead, we continue to highlight 3 key aspects of our investment thesis, namely asset diversification, precious metals focused and a portfolio, which derives roughly 80% of its revenues from Australia and the America. Cerro Lindo and Northparkes continue to be the 2 largest contributors to Q3 GEOs with both assets receiving a benefit from higher year-over-year volumes and of course, higher gold and silver prices.

Our asset diversification and geographical focus is well understood. So given the strong precious metals environment, I highlight Triple Flag's continuing 100% portfolio exposure on top line revenue to precious metals in Q3 2024 with a meaningful portion weighted to silver at approximately 30%. I feel fortunate to have this level of exposure given the many favorable tailwinds for both gold and silver in the near to medium term as a pure-play royalty and streaming company.

As highlighted earlier, the realization of strong precious metal prices and an asset profile that continues to deliver has resulted in record performance across revenue, cash flow, adjusted EBITDA and GEOs over the last 12 months. We expect this performance to continue as we deliver on our 2028 growth outlook and are committed to remain disciplined on capital allocation as we do [ diligence in ] yields for accretive per share growth and deliver sustainable returns for our shareholders. Over to you, James.

[James Dendle, executive]

Thank you, Eban. The open-ended optionality embedded in the royalty streaming assets is crucial to the value proposition of our business and well exemplified by the exploration success announced by Westgold for Beta Hunt where we hold both a 3.5% GR royalty and a 1.5% net smelter's royalty. Beta Hunt is an underground mine in Australia with 4 ore bodies across the 7-kilometer footprint, posting approximately 1.6 million ounces of measured and indicated resources and 1.1 million ounces of inferred. The main ore source is the Western Flanks deposits. The mine is currently undergoing an expansion to consistently deliver 2 million tonnes per annum of ore, which is expected to be completed in the first half of 2025 and support production growth at Beta Hunt over the medium term.

Beta Hunt's new operator, Westgold, has recently announced a significant new discovery known as the Fletcher Zone. The Fletcher Zone is located 300 meters to the west of Western Flanks and is interpreted as a parallel structure to this primary ore source. Successful drilling has resulted in Westgold declaring an inaugural exploration target under the dual code, the Fletcher Zone ranging from 23 million to 27 million tonnes at a grade of 2.1 to 2.5 grams per tonne gold and containing 1.6 million to 2.1 million ounces of gold. Clearly, this is a substantial discovery, which could nearly double the current resource base at Beta Hunt at a very similar grade. Exploration drilling is ongoing, and Westgold is also advancing decline development from the Western Flanks to the Fletcher Zone to support a potential new mining front. We look forward to the continued development of Fletcher Zone, which is a prime example of the strength of the streaming and royalty business model to deliver substantial additional gold and no additional cost to our shareholders. Over to you, Sheldon.

[Sheldon Vanderkooy, executive]

Thank you, James. With record production, record revenue and most importantly, record operating cash flow per share, we are very pleased to present these third quarter results to our shareholders. We will continue Triple Flag's track record of accretive growth. We have available capital of nearly $690 million, a broad base of 235 assets, a strong organic growth profile, and our corporate development team remains busy and focused on adding additional assets to the portfolio.

I want to stress our alignment with shareholders. The Board and the management team are large shareholders, and we are completely focused on shareholder value. We are looking forward to what 2025 brings for Triple Flag and all its shareholders. Jeremy, please open the line for questions.

[Operator]

[Operator Instructions]

We do have our first question. Sorry. And I apologize, I was not able to pick up your name in the recording.

[Tanya Jakusconek, analyst]

It's Tanya Jakusconek from Scotiabank. Just wanted to come back and circle in the deal type line. I know I asked this every quarter, but we have a gold price that is quite volatile and moving in both directions. And just wanted to look and ask what the opportunities look like for you? And right now, like we had last talked last quarter, about $100 million to $300 million range. And we had talked about mostly focused on the funding for new projects. But maybe someone can give me some color on what you're seeing today, and if anything has changed.

[Sheldon Vanderkooy, executive]

Yes. Thanks, Tanya. This is Sheldon speaking. I'll respond to that. It remains a strong pipeline. And that $100 million to $300 million, I think, remains in play. There's also some smaller transactions, I think, that we're looking at. We announced the Allied Gold transaction on the last quarter, and that was just a little bit over $50 million. So I could see there being a transaction that's in that range as well. The pipeline's deep. In terms of development, it remains that there's a pretty good proportion of the pipeline remains on the development side. There's also operating cash flow possibilities out there as well, primarily in the gold and silver space. I don't know if that helps or not.

[Tanya Jakusconek, analyst]

Yes. It does, Sheldon. And maybe are these simple royalties and/or streams or do we still have the complexity of having to look at maybe also providing debt or equity exposure as well? Are those still how we should be thinking about some of these transactions?

[Sheldon Vanderkooy, executive]

Yes. You should be thinking about traditional royalties and streams, Tanya. We really don't want to go down the debt and equity route. It's just not our business model, and I don't think it's what our shareholders are looking to us to provide our counterparties.

[Tanya Jakusconek, analyst]

And then maybe from a geopolitical standpoint, your recent ones have been in Africa. So I'm just kind of wondering if you have a focus to come back to more stable jurisdictions? Or how are you thinking about your portfolio there in terms of geopolitical risk on future transactions?

[Sheldon Vanderkooy, executive]

Yes, for sure. We don't actually start with the -- we're targeting a certain jurisdiction. It's more like you're looking for good assets, a good way to deploy capital. And then part of that determination involves, of course, the determination of the risk of the jurisdiction that you're investing in. We're quite happy with that Allied transaction and quite comfortable with the jurisdiction. That said, it's not like we're targeting Africa per se for our new deployment possibilities.

I'm thinking through the pipeline. It's pretty varied where it is. Probably the biggest focus there is Latin America. And again, it's always an assessment of what the risks are as a whole. I'll come back to, though, is when I look at the portfolio as a whole, we really are centered in Australia. Australia is our single biggest concentration and primarily like mining-friendly jurisdictions in the Americas as well. And so I don't see that changing.

[Tanya Jakusconek, analyst]

Okay. So would you say a lot of your -- and maybe I misunderstood this, but you're seeing a lot of opportunities in Latin America at this point? Or did I misunderstand that?

[Sheldon Vanderkooy, executive]

If I had to say a single jurisdiction that most of our pipeline is in, it's in Latin America, but there are opportunities that are outside of Latin America as well.

[Operator]

[Operator Instructions]

Our next question comes from Derick Ma from TD Cowen.

[Derick Ma, analyst]

In terms of the evolution of deal mechanics and emerging themes, are there certain things that counterparties are looking for when you're looking at the deal market right now in terms of potential stream opportunities?

[Sheldon Vanderkooy, executive]

Yes. Derick, I don't think there's anything that's really a sea change of difference from before. I mean, we're always trying to keep our exposure to the whole project to extend the life of mine. Counterparties are, of course, cognizant of doing a deal that works for them and their shareholders as well. But I wouldn't say that there's any real sea change of difference from when we started in 2016 through today. In some ways, the streaming and royalty model has just gotten more accepted over the years. I think everyone that goes and looks to finance a project probably -- well, certainly, they're considering a stream. And I think I'm actually quite pleased with how many times the stream is part of that financing package.

[Derick Ma, analyst]

Okay. That makes sense. And in terms of alternative financing, we've seen a number of gold prepay arrangements being completed in the last 12 months or so. How do gold prepay compete with streams? And does that potentially erode the opportunity set for streaming companies?

[Sheldon Vanderkooy, executive]

I don't think so. I think it's actually part of the total capital picture that companies are looking at. And if someone has a prepay and it sits alongside a stream that would be provided by ourselves, that could actually be for our benefit as well. In terms of -- there's some really fundamental differences between a prepay and a stream, right? It's -- but part of that is we actually finance over the entire life of mine. And I think that can be really attractive to counterparties. We often -- we also share the production risk, which prepay just doesn't do. And I think there's some real advantages to the stream financing for operators. But again, I think that a lot of them are looking to put together a total mix. And kind of as alluded to on the prior question, there can be equity provided by other sources. There can be debt provided from other sources. And if there's some prepay provided from other sources, I think that could also work.

[Derick Ma, analyst]

You said debt and equity are not really what you guys look at as part of the core part of the business, are prepay something that you would look at more going forward?

[Sheldon Vanderkooy, executive]

We've gone there in the past. I mean, it's not that we've ruled it out. But again, what I really want to offer our shareholders is life of mine exposure. A prepay isn't life of mine exposure. So it's never going to be the focus of our business or, quite frankly, the focus of any one financing.

[Operator]

I'll give it just a few more seconds to see if anybody else queues up. It looks like that is all the questions we have today. So I'll turn it back over to Sheldon Vanderkooy and the team for closing remarks.

[Sheldon Vanderkooy, executive]

Yes. Thank you, Jeremy, and thanks, everyone. I don't have any more closing remarks, but it's been a great quarter looking forward to what the end of the year brings, and then 2025. I hope everyone has a great day. Thank you.

[Operator]

Thank you. That does conclude today's presentation. Have a pleasant day.