Q3 2019 Earnings Call
I would like to drill for she score gold realities.
On a push and agile and discipline EBITA welcome to the Conference Center. Please stay on the line for the next available operator.
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Sure bottleneck overhaul smell the name of the conference. Please.
The school thank you.
And many other spelling of your first and lasting please.
First name D E I'd David.
And last name be our old W and brown.
Thank you and now have your company named please.
Eight I.E.R.A. our euro.
And your telephone or roughly.
The when do those figures euro tree 6007.
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Thank you I will join you know.
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I work.
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Current production there.
Oh, we're certainly impressive.
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[laughter] my work can be done in the capital.
[laughter] as we develop this opportunity to go forward.
The context departmental acquisition, we created the North America Discovery group.
[laughter] discovery group chattel financing.
From private centre in private equity and third party private equity partners.
To allow for joint venture and to look at all so I didn't training and or selling assets.
Yeah.
Streams, we believe this the natural evolution of our accelerator model.
To help simplify our equity and sorry, I want the portfolio and as we move forward and we'll be looking to raise some not so partnership equity through our spring discovery.
The new here as we get more settled.
Inflection.
The main mandate for that finance it won't be project financing engineering.
Management, which is really Oh.
Volume side.
Kelly Dougherty accelerator model.
Correct five years ago, we talked about what the goal of the accelerator model, which was to create our own in house organic opportunity. We now have those those opportunities have been maturing.
And were evolving to take advantage and work hard work that's been done in the investment have been made last five years.
The keynote <unk> on page six taking through the timeline, what we see at Barker, but also it's a crucial point.
And the evolution of this story that the feasibility studies underway permitting is underway.
We have the resource has been completed on the first portion of the project, which is about four kilometers on the trend of 67 kilometers quite a bit of upside.
And that we have an existing no. Thanks.
Fund.
And I permitting how are we taking advantage of the weight of here starting to set up with low capital intensity of left 240 million U.S. dollar.
Required to build a 185000 out to your mine in Canada.
Thanks to having a little bit of an overview from our friends from Victoria.
Wrapping up to 200000 ounces a year this will be the latest that gold mine.
Come online in Canada for his goal.
Through the Gulf War that we all in joined at the Denbury Ball show in September .
Either way.
Hey forward as this northern heap Leach operation at 30000, plus tons per day part is a sizable mind it sets the stage for many more opportunities.
To be unlock now that we have such significant piece of infrastructure.
Thank you find a region.
Page eight subsequent to September Thirtyth post quarter. We also completed the credit bid for their Starway Diamond Corporation.
We will maintain our 9.6% street on the remark Diamond mine and the credit that was successful and in outflows correctly.
Codes.
And the other streaming partners on getting that done.
Line complicated process, but the diamond mine is up and running.
Well.
We had the privilege of attending a diamond sale.
Our partner mechanical investments came back.
Some of the other groups that remain in.
And then consortium and indignant ownership structure for this project.
And then we have a lot of individual has.
And individuals involved energy all of managing.
Assets or commodity price.
Stage for success as we come through.
What everybody seems to believe as the the next leg of the diamond market with the closing of our some of the other producers Canada like Victor.
We see a lot of upside there at the same goes by low sell high.
We feel pretty good about what's happened with far away.
And maintaining our 9.6% diamond stream and being able to keep the mine in production moving forward.
We also declared a five cents dividend on our stock payable January 15, 2020 to shareholders of record as of December 31, 2019 factor the team are particularly proud of.
As we set out in 2014.
To be a different royalty company.
And to pay dividends and have a disciplined approach and capital allocation.
And did have a Canadian focus moving through our value proposition.
To shareholders page nine is a summary of the royalties and streams that contribute to.
Our current Geos, we achieved 18128 ounces or the year.
Yes.
Quarter ending.
At the end of September our allocation of metals within that space.
Is that 69% gold, 18% silver, making it a total of 87% in precious metals. If you include diamonds.
Metals.
Our pressures that we would be at 98% waiting at that and we have achieved 91% margins.
On our portfolio this year Canadian Malartic still is our cornerstone asset having delivered just under 8000 ounces departure.
The breakdown on the rest of contribution to the portfolio.
Underneath and we continue to build on that basis, and our friends from up from up Victoria will hopefully be lead force for next year is that mine continues to ramp up.
Return on capital on page 10.
Very proud of this line.
Managed to.
Make money consistently since the IPO. This company in 2014, and we've got a disciplined approach to returning that capital to shareholders with over $219 million, having been returned to shareholders. As we started this company.
Through the share buyback and also total risk for you if we combine share buybacks with our dividend payments were $328 million has been returned to shareholders.
Through the process of value building that are.
On page 11, I'm going to hand, it over to Ellis, our chief financial operating officer.
To take you through the quarter in more detail. Thank you. Thank you Sean good morning, everyone.
Revenues from royalties and streams increased by 80% to 33.9 million compared to last year.
Mainly due to increase in our stream and stress and we also recognize record operating cash flow at 28.3 million compared to 20.6 million, mainly reflecting increased cash margins and elimination of cash settled share based payment.
If we go to the next page page 11 earnings excluding impairments stood at 13.1 million compared to 5.5 million for the same period last year, reflecting a strong quarter I am the gain on sale off the shock offtake net losses due to impairment charges that I'd like to go and living.
More detail on next line.
Were 59 million net income taxes, and so our net losses for the quarter stood at $45.9 million and our adjusted earnings.
Josh point 7 million for last year third quarter, and 17.5 million for this quarter.
Mainly reflecting again like I said increase into cash margins at all as the game that we have made from the sale of the pump Jack interest.
So if you go to page 13 little bit more detail in terms of our impairments as we announced previously Stornoway diamond the operator of the Red Arc mine, but it's running at strategic approach that Cisco along with other creditors.
Lets supporting the protests in September the operator, now that it had applied to protection under the Cc delay just structure its business and financial Affairs and this was considered an impairment for accounting purposes, and we have to Ron and impairment assessment, which resulted in the impairments I can see here 47.2 million.
And three 4.6 million net income taxes. So now the recoverable amount for in our time asked for an art.
Stream for us stands at $17.2 million.
And the all the amounts are stream and offtake front in September Libyan again, the owner of the malls or project announced a delay and timing of the construction activity.
And the expected from both or in a ramp up for the full production as a result of the now 15 models that blockade on construction.
As well as some changes expected life of mine in annual production that came out they came up with within the third quarter and again. This resulted as an impairment indicator for us and we did test our model, which resulted in a 9.9 million U.S. impairments and coming up to 13.9 million in Canadian dollars.
For the quarter. So after these adjustments.
The MSR stream and the offtake recoverable value is about 73.7 million USA and 97 million in Canadian dollars.
For Falco resources, the net investment with imperatives and associated for us.
So the carrying values not actually at ferrous volume does that's why we have actually.
Nine the reduction in the fair value of the equity investment in Falco resources as you bring it down to fair value and we recorded an impairment charge of 12.5 million and 10.8 million net income taxes.
For the quarter.
So if you go to page 14 ill give a breakdown in terms of revenues.
And the type of interest that we have royalty streams and offtake as Sean mentioned it was a pretty strong quarter in terms of our.
Royalty and stream interest and we unfortunately, 90.8% cash margin.
From those interests as well in terms of Offtakes revenues stood at 75.3 million compared to 80 million last year, we're going to see a reduction in considerable one in terms of the revenue because of the Bruce shock costing sale access to give you an idea the growth that boost shock offtake agreements I was bring us about 80.
And revenues per quarter, but of course with a very low historical cash margin. It's 1%. So although the revenues will go down considerably because of the offtake agreement now not being there anymore.
We're not going to see material impact in terms of far cash operating inflow.
Page 15.
Kind of gives us a breakdown in terms of to different.
Products in our Geos in terms of gold silver diamonds and other metals.
We did have revenues of $109.2 million.
And a gross profit of $20.9 million.
And again with the strong cash flow for operations 20.3, as opposed to $20.6 million. So our financial position on page 16, we have drawn on our credit facility for 50 million U.S. coming up to about 20 million Canadian so that leaves us with the available credit a four month.
80 million, including accordion.
Looking at Das our cash and our fair value of our investments in the marketable securities we actually have almost $900 million in a available capital for us for future investments.
On page 17, we just have to revise our guidance. This quarter you will see on the left hand side, you were solid guidance and low and high.
Level in terms over expecting the revised guidance now.
8000, Geos and the main results for the reduction it's really the weak diamond prices that we've been seeing for the ruin our mine during the year and sale of to boost shock call uptake and the impact up until half for the fourth quarter. However, we do see that the cash operating margins and the operating cash flow are expected to be in.
Finally, we as expected and that is of course, a good part as a result office strong gold price that we're seeing.
So one touch on Saturday for a minute sizing. Thank you.
Onto.
Page 18, as a slide that we discuss a lot it has been around for quite awhile.
Sums up our investment strategy.
As you know we set out 2014 with the accelerator model as a new introduction to the royalty and streaming space.
And that was essentially on the left hand side.
And then 25% incremental investment, where we said that.
And we would invest 25% our investments available assets under management.
In the accelerator model and then we would invest 75% more traditional.
Yes.
But opportunities.
Refinancing of debt or project expansion.
We traditionally see in the Graham.
Gold colored zones within this chart.
What has happened over the last five years and accelerators base.
Incubated Osisko mining, which has gone from an $8 million Mark up to 750 800 million on market cap with the successful discovery at Windfall Lake It continues to be the largest earlier in Canada.
With over 24 drills, turning on it as of yesterday.
And continues to be discovering new and exciting ounces there.
Also came along we incubated the arc five project, which went from zero ounces.
In 2015 to currently sitting at 6.1 million ounces.
Gold equivalent reserves, our overall resource area over 9 million ounce gold equivalent ounces.
Metallic BMS deposits.
So huge success there obviously.
That project is currently in the trough.
And that.
In the permitting cycle on a few full visibility was published in 2017.
We also.
Thank you Baited Barker, Bill and with Cisco metals.
Which is operated by above whereas on the pipeline project, which is or is it base metal company.
And we would it we would consider Victoria to have been one of the accelerator investment companies that we participated in those later on.
Cycle.
So we've been very successful at that I would say, where the most successful accelerator investment that we've made so far as Arizona Star, where we invested $5 billion.
In equities and $10 million to buy a 1% royalty we made a net return of $34 million on the equity portion of that investment.
So on the 1% royalty on their animals or project in Arizona through the accelerator program. So.
It's been a very potent source in the royalties that we've earned in that accelerators place would include the 5% roughly or 4% roughly that we have on on the caribou project.
Clues a 1% that we have on are most up.
One of the half to 2.5% that we have windfall Lake project.
As well as the back 40 project of some of the other significant royalties that we burn along the way.
As you see in the middle of the as owner to development opportunities.
We typically see that projects.
Lots at companies in particular have a value challenge.
When they're in the development phase and Thats essentially after the first resource comes out the PD study through the Prefeasibility study feasibility study permitting a and project finance and then into construction and we see coming back.
You can see on this curve, we've indicated Eagle Eagle is completed construction as of September currently and ramp up.
So we've been through the cycle with Victoria, we bought into the company.
After they had achieved permitting and.
We are the catalyst investor with our partners from a Ryan to get a $550 million finance package together in that window and now we're seeing at that project.
Bearing fruit for us as retention bikes and well along on that project caribou sits neatly here at just having productive.
Study.
Continues to deliver exploration successes now heading in.
To the feasibility and permitting cycle, we expect to see permitting there to take on the phase 4000 tonnes per day phase of the project to be somewhere around the 24 month Mark.
So after that project financing, it's a relatively low cost mind bill again at about 225 million us dollars of which half of it could be financed by debt traditionally.
So, leaving the equity in royalty component sitting at around 120 million in us dollars left.
Two production and that project after permitting cycle has been completed.
If you look at the other opportunities, where we participated in the producing opportunities we.
With our partners that arrived we did the largest royalty deal on the acquisition of the Ryan portfolio in 2017 for 1.5 billion dollar.
$1.1 billion to $5 billion.
On that portfolio, we subsequently invested in silver stream into broker and.
And we bought the rennard refinancing.
We went through that diamond mines so.
The message that I would like or would it take away today is that we have not changed our strategy. We continue to work on the 20, 575% model Caribou is the most recent entry into the 75% zone.
We set out 2014 to create our own.
Opportunity set or the dominant Canada.
And we've looked at all the projects that can go sort of four to 5 million ounces on the Canadian landscape and we feel like we're involved with what's a good portion of them and we see our growth.
Being more organic within the accelerator model.
As we go forward I know, there's been some discussion about change and business model, but we remain on our accelerator model and integration of our spirit.
We are looking forward to.
Evolve our accelerator model are mostly purify the royalty volatile in the eyes of our shareholders as we get that piece of work complete in summary on page 19. The company is very good shape with 135 royalties.
Dominant Canadian.
Opportunity set in front of a dominant Canadian source of royalties here, how we produced over 80000 geos in the quarter, 91% cash margins.
And the dividend yield of over 1.6% as we as we go into the end of the year and as of December 30, Onest Revitas talked today your yields are going to be north of 2%.
And in investment portfolio of $293 million with $123 million of cash on hand as of the end of September .
Some cash coming in.
From our sales as well as our traditional cash flow from our royalties, leaving us with over $800 million available liquidity to manage the business and take advantage of the opportunity sets in front of us.
No I, thank everybody it will move into the queue in a period. Thank you.
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All right well, thank you everybody and as a final note, we'd like to send our condolences.
To the employees workers.
From a phone Burkina Faso recently suffered significant losses.
Across our with the families of people.
But as tragedy.
If anybody has any questions for us so we will be attending Raymond James Conference in.
In Austin, Texas, This weekend and were available by phone.
It would require thanks, very much and look forward to seeing you next available cash.
This concludes today's conference call you may now disconnect.