Altius Minerals Corporation (OTCPK:ATUSF) Third Quarter 2022 Results Conference Call November 10, 2022 9:00 AMm. ET
Participating companies
Flora Wood – Vice President, Investor Relations
Brian Dalton-CEO
Ben Lewis – Chief Financial Officer
Conference Call Participants
Craig Hutchison – TD Values
Brian MacArthur-Raymond James
Orest Wowkodaw – Scotiabank
Operator
Good morning and gentlemen. And welcome to Altius Minerals’ third quarter 2022 monetary effects convention call. At this time, all lines are in listen-only mode. After the presentation, we will conclude a Q&A query [Operator Instructions]. This call was recorded on November 10, 2022.
I would now like to speak to Mrs Flora Wood. Continue.
Flora Wood
Hello everyone and welcome to our third quarter convention convening webcast. Our press release and quarterly documents were issued yesterday after the close and are available on our website. to access a replay of the call two hours after it ends, as well as slides from the presentation on the altiusminerals. com website. Brian Dalton, CEO; and Ben Lewis, CFO, are speakers on the call, and then we’ll open it up for questions. You’ll see the forward-looking on slide 2 that applies to everything we say, whether it’s in formal comments and during Q&A. And with that, I’m going to give Ben the basis to explain the numbers.
Ben Lewis
Thank you Flora and greetings to all. Third quarter attributable royalty gain of $26. 2 million or $0. 55 consistent with the consistent percentage increased 26% year over year, while year-to-date royalty gain of $80. 3 million or $ 1. 78% consistent with the consistent percentage was up 33% from the same consistent with 2021. With nine-month earnings as of late at $80. 3 million, we’re on the right track. on track to top 2021 annual profit of $83. 9 million and set a new record for the company. Third Quarter Adjusted EBITDA of $23. 7 million or $0. 50 consistent with a consistent percentage of greater than 40% quarter over quarter. EBITDA margin from mining royalties increased to 87% for the quarter as constant prices remained relatively strong compared to earnings. Year-to-date Adjusted EBITDA of $71. 7 million increased 46% over the same constant period in 2021. Third quarter adjusted cash flow from consistent variances was brought forward and set at $25. 9 million , an increase of 37% quarter over quarter. Year-to-date adjusted for $56. 7 million net cash flow of $7 million and taxes paid in cash up 69%, driven back by consistently higher profit margin with the expansion. We continue to see earnings acceleration in ARR through their 50% owned GBR joint venture. In particular, ARR achieved the milestone of first positive cash flow and consistent with quarterly profitability. GBR also raised its 2022 annual earnings forecast to $6. 5 million to $6. 5 million from $7 million, from $4. 5 million to $5. 5 million in the previous report. Brian will communicate more about the significant progress made through ARR, and I further inspire you to review his recently released quarterly presentations and comments from the investor convention call.
Now let’s move on to balance sheet and capital allocation. Indeed, we deployed $18. 2 million in the quarter in new late-stage cash flow and royalty investments as we capitalized on declining market sentiment. This was $15. 9 million for the purchase of another 550,000, according to percentages from the Labrador Iron Ore Royalty Corporation, which is a vehicle for the movement of royalties and inventory dividends from the IOC iron ore mine. We also finance $2. 3 million in direct royalty acquisitions under our 10% joint venture rights with Lithium Royalty Corporation. ARR also participated for its 50% interest in the joint venture’s new $40 million royalty investment in renewable energy development in line with Hudson Energy. The company also paid a dividend of $0. 08 in line with the quarter percentage, which represents an increase of 14% over the prior quarter rate. The board also declared fourth quarter dividends of $0. 08 consistent with the consistent percentage, which will be paid to consistent percentage holders of record on November 30 with a payment date of December 15. for a total charge of $2. 7 million. We renewed the issuer offer last August and it will be in effect through August 21, 2023. During the quarter, we also made scheduled repayments of $2 million on our term debt.
I’m going to take a moment to add a little more color to our existing leverage point, as this is obviously more current with investors given the existing interest rate environment. We have $42 million in term debt at an interest rate on that debt that is locked in at 4. 3% until it matures in 2025. In addition, we have $82 million in revolving debt, which has a variable interest rate that is currently around 6. 3%. . Array While we do not view our leverage ratio as onerous relative to our balance sheet, we are heavily tracking rates and would potentially consider shifting our capital allocation priorities toward debt relief in recessions. to come. This would allow us to avoid higher interest rates and, frankly, also avoid any unnecessary distractions akin to debt market volatility and the imaginable buildup of restrictions among finalists in general. This resolution will, of course, be based on an ongoing basis as a component of our liquidity control, as we have also discovered a hornier investment environment of late, as evidenced by the recent expansion investments that I have already discussed. Our existing liquidity consists of $23 million in cash at the end of the third quarter, and we have $93 million in idle balance. ARR at the end of the quarter had cash on hand of $55 million.
And with that, I’m going to talk to Brian to communicate to him about the environment and the panorama.
Brian Dalton
thanks ben Thank you Flora. Hello everyone. Our royalties continue to perform well in the existing inflationary environment of industry capital and operating charges. These put pressure on operating margins and increase curve pricing and incentive pricing requirements for most commodities. The number one nature of our royalties coupled with the diversity that has been built into our portfolio serves the business well and our revenues are about a third higher than the same era last year. That said, there have been a number of combined signs of progress within the portfolio. Fortunately, most of them were considered positive. Starting with metals focused on electrification, 777 recently ended production, while a significant new high-grade copper discovery took shape at Chapada. Its first resources are expected in the first quarter of 2023, which Lundin Mining says is currently being considered as part of its mining expansion plans. Adventus remains on track with its plan to start the Curipamba structure next year and announced this morning that it has effectively negotiated an investment stability agreement with the Ecuadorian government. I’m glad to take this opportunity to salute the entire Adventus team for the progress they’re making, breaking down barriers and silencing opponents. LRC has a number of projects that are boosting production as incentive situations remain very strong for lithium, which is a bit of an outlier for the sector in general or perhaps a harbinger. And we also sense that the company has found intelligent degrees of interest in considering its strategic alternatives.
IOC production improves as in the past much-needed deferred maintenance and expansion capital is re-injected back into operations. Quality premiums remain strong, but benchmark iron ore costs have fallen due to falling metal demand in China. Pantheon remains on track to publish the effects of its DR pellet feed trial for Kami in early 2023. Potash prices remain high, especially in Canadian dollars. However, they cemented part of the initial rocky runoff following the surprise of Russian and Belarusian sources at the beginning of the year. This surprise also appears to have caused buyers to overstock before the [indistinguishable] sanction restrictions, and led to fewer purchases later in the year, which negatively affected two sales volumes from our traders. This has caused a bit of consternation in the market, but to be honest it’s a bit stupid in the short term aimed at us. Our carriers continue to note that the market remains structurally short of their overall source needs, and continue to invest in capacity expansion to the extent they can muster as the world grapples with famine. valid [Indistinguishable]. They also point out that stocks of potash and many crops are low in some areas and nutrient levels are relatively depleted, while the costs of major crops continue to prompt farmers to plant more and try to grow. come back next year.
In the medium to long term, we know that Canada-based potash production is poised for significant market percentage growth, geopolitical threat premiums in key competition regions and continues to grow and grow. establish the relative situations and benefits of Canada-based incentives. The end of our coal royalties is already in sight, as Capital Power works to complete refueling at Genesee. However, we have had some positive news in the form of a Supreme Court of Canada ruling that particularly complements the strength of our de facto expropriation action opposed to the governments of Alberta and Canada. Altius Renewable Royalties, through its 50% stake in GBR, continues to grow rapidly in terms of implementing investments and adopting its royalty financing design for the renewable energy sector. It is also reaping benefits from the accumulation of electric power costs that contributed to GBR recently extending its full-year profit forecast and announcing the achievement of the milestone of achieving a loose cash flow. positive.
Three additional royalty allocations recently in structure and a strong accumulation over the length of its progression royalty portfolio are the result of an acquisition through Enbridge and one of its issuers, its built-in expansion trajectory looks forged for the foreseeable future. Most importantly, this expansion trajectory will more than offset the decline in coal revenues in the short term. This was one of the main effects expected when we created the company with the GBR team. At the time, we called it assignment lemonade and it went well. AngloGold’s enthusiasm for silicon allocation is developing further with the company’s recent public reflections, suggesting that the potential length of resources continues to increase significantly. and will most likely host the Merlin Discovery extension for which a first announcement of resources is expected early next year.
Now let’s update our broader cyclical outlook. Shareholders have asked us in recent months that the peak of the commodity cycle is over. It’s a smart query. We hit the cyclical low in early 2016 and costs have been higher in the seven years since, especially if the era of innermost COVID fears can be ignored. Now, of course, there are concerns about the recession and what it might do to short-term imbalances in supply and demand. So a moderate query indeed. Our argument against the cycle having a maximum delivery is quite simple. Our view of history says that the commodity cycle continues after an era of price-driven sourcing growth. We see copper as a proxy, it’s been over 10 years and counting as the sector has particularly invested in rebuilding or growth. We almost got there at the end of last year in terms of incentive conditions. But since then, a combination of lower costs and higher capital expenditures and operating costs has really pushed the bar higher. We believe that the existing short-term sentiment is deeply disconnected from the long-term baseline reality, making us sometimes even more positive about our diverse positioning bureaucracy and long-term optionality.
This comment will no doubt cause one to wonder if our investment appetite is altered despite our confidence that we remain in broader procyclical conditions. The answer is yes, a little. While not a cyclical downturn characterized by excessive looming source pressures and dilapidated balance sheets, yet to say during the 2013 era, 2016 operating margins deteriorated rapidly and competing capital resources acted [shots ]. We note that in the past, those cyclical windows of interest, for example, the global currency crisis, industrial wars, and the era of pandemic panic, the market in particular has provided select opportunities to position royalty-based stocks at a value in our view. long-term. -term cost of its underlying. royalty fee. So yes, we are employing sharp pencils these days and making investments. To date, we have increased our interest in Labrador Iron Ore Royalty Corporation for direct and oblique royalty exposure at the IOC mine, and have co-invested with LRC and direct royalty purchases. We also take a look at other choice conditions where the market is mispricing assets, betting on short-term noise and underestimating long-term fundamentals. Fingers crossed for the things that remain obscure for a while, most of you know we mean more attractive, anyway in the ages to come we like our stance. And this concludes my comments. Is there any question? Thanks.
Q&A session
Operator
[Operator Instructions] The first comes from Craig Hutchison of TD Securities.
Craig Hutchison
Brian, referring to his comments, we clearly saw a massive inflationary tension and that squeezed the margins of several producers. In some cases, balance sheets have deteriorated a bit to create an opportunity for you. Do you see bigger opportunities right now, or is it less in terms of new royalties?And I guess maybe, how do you assess those opportunities in relation to a comment about spending that’s shifting to capital allocation to reduce short-term debt?
Brian Dalton
Craig, I would say, we dipped our toe. Definitely, and what we’ve noticed so far are conditions where public markets cause costs to decrease relative to our valuation outlook. It does not yet seem obligatory to say more personal or direct negotiation assessments. And there is still, I think, underlying long-term perspectives around asset prices among those who have. And here I’m talking about more direct royalty buying opportunities, which don’t feel so distressed at this point. And again, the difference between here and let’s say 2014 to 2016, I mean, yes, there’s margin compression and balance sheet deterioration. But you have to do it at the time when a balance sheet annihilation was occurring. So, sometimes speaking, there’s a greater track record there. But maybe it gets deeper, I hope it does. But for now, we’re just taking credit for the kind of public market-based dislocations we’re seeing, but we’re in a position to do anything.
Craig Hutchison
And just with respect to silicon, it was discussed beyond the option of monetizing or trading for a royalty on base metals. I know they’re conducting a pre-feasibility study early next year. Another opinion on this, is the additional small after the pre-feasibility examination, or may it simply be something we can see before that?
Brian Dalton
In fact, there is a lot of interest in silicon royalty. I mean, obviously, world-class gold discoveries, specifically in Nevada, that have royalties on them, don’t happen every day. But I think your comment is probably correct. I mean, it looks like we’re going to see: there are big occasions at the beginning of the year, you have the pre-feas in the silicon tank, it’s possible that there will even be a resource upgrade from there, and the first resource is Merlin. So, we’re now pretty close to some pretty vital updates. So let’s see how it develops and look forward.
Operator
The next one comes from Brian MacArthur of Raymond James.
Brian Mac Arturo
Can you remind us when you get paid royalties, is it based on sales rather than production, or is it when it ships?Going up a bit, but still high. But volumes are rebalancing as we procrastinate things. So I’m just looking to get an idea of the volumes that will come through your business over the next two quarters.
Brian Dalton
Royalties are based on FOB Saskatchewan. So, more production, I would say, than sales because there is an obvious delay between Saskatchewan and the next destination of the product. And that explains some of the differences in value we’ve noticed in emerging markets. And we’re going to look at it either way, obviously, though, you get it, just look at that quarter gap if you’re looking to perceive sometimes, and it adjusts a little bit. This is probably most true when most sales are based on Midwestern values. The more you enter sales in Asia or Brazil, where you enter more contractual values that can change. But sometimes, very, very roughly, if you look at the average value of the quarter, before that, you’ll have a pretty clever idea of what we’re going to get and bring back in the next few quarters.
Brian Mac Arturo
And my query at the moment has to do with the appeal, and I don’t know what you can say about that. What happens next, is there any temporary knowledge problem about it, because you, I guess, am not yet a lawyer?reinstate your appeal or the way I deserve to express it?
Brian Dalton
Then we had the initial negative ruling, which rejected our request, which we appealed. And the dismissal was confirmed on the occasion of a derogation or appeal, the exact reasoning being that under the interpretation of the law of this court and the old jurisprudence, we can simply not say that there would have been an actual capture. So the recent Supreme Court ruling clarified that point, as to what constituted a capture, and that’s essentially what it says, is that, look, if the government gets an advantage that is — it complies with that component of the check to the extent that it takes those. So yes, we have appealed this dismissal of the check. And obviously, with this new Supreme Court jurisprudence, we’re pretty positive about postponing that. I don’t know, Flora, if you have a better concept of when or when the next call might be heard.
Flora Wood
I don’t know yet. But I’ll stick to that with our attorneys and then I can respond to that, Brian.
Brian Dalton
Sounds good. No, I don’t know exactly when that, I don’t think there will be a date since then, in other words.
Operator
[Operator Instructions] There are no questions at this time. Continue.
Flora Wood
Serjio, I give you one more minute, because I know that we are among other calls, and I know that at least one part wants to enter. So, if we give it another thirty seconds or so.
Operator
We have consultation from Orest Wowkodaw of Scotiabank.
orest wowkodaw
My query is more about strategy. We saw transaction M
Brian Dalton
We don’t think about climbing to do much. I mean, Array if you speak, we’ve done a lot of M&A in our history and obviously we prefer that in countercyclical type conditions. But look, I mean, it comes down to, does mergers and acquisitions drive up the price and I mean, is it dilutive not only for short-term metrics but more importantly for quality? And for us, I think more and more, that’s a barrier in terms of how many built-in features we think we have right now. When you do a transaction like that, yes, you’re taking assets, but you’re also diluting yours. And yes, again, as an expansion strategy, of course, there are conditions where we’ve used them in the past, and we wouldn’t hesitate to do so again. But right now, I think we like what’s being built organically within the company. And we also love those little opportunistic pieces on the rise. So we are not in this field of everything that they gave us, they gave us to grow, they gave us to grow, they gave us to grow to be applicable at all costs, we are not going to dilute what is in this business now and what we think it’s going to come out of it naturally, just for the sake of it, I think it’s a fool’s game.
orest wowkodaw
And maybe just as a follow-up. I mean, during the quarter, it increased its assets even less. We should be thinking about. . . I’m just looking to think about the comments above about the option to seek balance sheet reduction, given the context, what’s going on?Falling interest rates in debt markets. Should we use your participation and fundraising as a financing option to drive this type of deleveraging?
Brian Dalton
For this specific operation, I would say no. I mean, we see this incremental acquisition as long-term. And not only, it’s not a trading position where we cut, look, even if we have, if we really feel the need to do something dramatic with our balance sheet, it’s always available to us, and us. I always noticed that she held her lip that way. But it’s inherently, it’s a long-term position for us. I mean, they won’t forget in 2020 or so, when COVID fears were at their peak and none of us knew if a mining operation was going to be operated, and I think we came in right after making a pretty big investment. in ARR. So we were pretty limited. We then made the decision to sell Labrador and put more cash on our balance sheet. It was not a pleasant decision, but in the interest of maintaining our balance sheets, as a fortress, so to speak, we made this decision. So the option is still there. But it is, again, the new stock or the new stock that we’ve added to Labrador is meant to hold for the long haul. The comment above about deleveraging on the balance sheet is that being in debt right now is just a noisier environment and increasing investor questions. And obviously, as we’re still looking at what our capital allocation priorities deserve to be, I’d say debt relief going forward is top of the list just because it’s loud and distracting on those days. But we’re not in a scenario where let’s say 2020 where we have to shield our assets here from debt on our balance sheet, it’s nothing like that.
Operator
[Operator Instructions] Ms. Wood, no questions at this time. You can continue.
Flora Wood
Thank you, Serjio. Et thank you all for listening. I know today is a busy morning, and we look forward to talking to you later this year.
Brian Dalton
Thank you all.
Ben Lewis
Thanks.
Operator
Ladies and gentlemen, this concludes your convention for today. We thank you for your participation and kindly ask you to log out.