Q2 2021 Osisko Gold Royalties Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the gold gold royalties Q2, 2021results conference call.
After the presentation, we will conduct a question and answer session if.
If you'd like to ask a question. Please press star followed by the number 1 on your telephone keypad.
Please note that today's conference is being recorded today August 10th the 2021at 10, a M eastern time.
Good day on the call we have Mr. Sandeep Singh, President and Chief Executive Officer, and if you ex critically krill, Chief Financial Officer, and Vice President Finance.
I would now like to turn the meeting over to our host for today's call. Mr. Sandeep thing.
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Sandeep Singh.
Great. Thanks, very much operator, and thanks to everyone for joining us on our Q2 conference call.
So sandeep thing speaking.
Note that I'm working off a on IR deck on our website.
I get up under the presentations section.
And also please note that I'll be making forward looking statements are we will be making forward looking statements. Today. So please be mindful of.
Of that switching over to slide 3 entitled Q2 highlights first and foremost the very strong quarter for us.
Other than a row, frankly, b assets continued to perform exceptionally well to perform the producing assets.
And we look forward to a strong second half of the year as well as we do not expect that that theme 2 to change for us.
In fact, hopefully the opposite so what are our core assets continuing to strength and so really good quarter very happy with it. We earned as you all know just over 20000 ounces of Geos gold equivalent ounces for the quarter.
Sets us up really nicely just above 40000, geos from the past year.
Youll note that our guidance for the year remains unchanged from the time being at 78 to 82000 ounces. So striving right at the midpoint from the time being.
You've heard me say most of you I'm sure. We do expect a strong second half as we have at least 1 core asset ramping up which is the Eagle mine on talk about later on.
And other smaller at least 1 other small asset that will kick into production and start to contribute as well so well set up in the first half of the year looking forward to the second.
Also in Q2, a record revenues and cash flows from the royalty stream business. So again, good ounce deliveries coming alongside strong commodity prices.
We had the same type of cash margin that you expect from us So 94%, 97% if you exclude the Bernard ounces.
So Ken you last quarter and a consolidated net loss, obviously, a $15 million. Some of you may have listened to the Cisco development conference call just preceding ours that impairment has to do.
Net is alleged phase II, which is a satellite.
Projects at the Caribou site and I'll get into that I felt a little bit later, but important to note.
That really that is a bit of a secondary cleanup exercise some old waste material, a little bit about and benefit from a training perspective.
And some cash flow expected, but it's not the.
It's not the main the main meal there.
Adjusted earnings per the royalty and streaming business of $24 million almost Canadian on 14th of share.
We paid our dividend for last quarter of 5 cents a share importantly, we.
Bumped it up a little bit by 10% going forward to 5.5 cents a quarter or 2 annualized.
For the next time around.
And I think worth pointing out that despite pretty significant volatility, especially on the last several trading sessions.
Strength of our business the high margin nature of our business and on our confidence in it.
What allows us to increase on already peer leading dividend.
We also published our inaugural ESG report in the quarter, we announced the commitment to join the U N on pack so again.
Advancing our initiatives to be a leader in the ESG space, We've always done things in that regard do you look at our asset base and you'll know that.
<unk>.
See that it was probably.
In some ways built of ESG in mind, which it was even though it didn't used to be called ESG.
And we're catching up on the disclosure side of things.
And then on the right hand side here also worth pointing out that we updated and expanded our.
Rolling credit facility. So we think our lending partners for their continued support on that front, we're able to add $150 million stock credit facility been drawn amounts important to point out also have not changed.
The facility reduced the overall cost of it so the pricing grid in portions of the growth has come down.
And given ourselves greater.
Flexibility going forward so.
Happy to get that behind us as well.
So it's just a quick snapshot again moving to slide 4.
Just 1 more time on the dividend I guess.
To note that this company has been paying dividends since its IPO since the day 1 essentially we've returned.
Significant capital to shareholders over the gold.
Those 7.8 years now.
With by the end of this year the dividend remains at current levels it would be $184 million.
Dividends alone to shareholders by way of.
Our return on capital.
It had been set at 5 cents a share for some time, but obviously with the gold price or commodity price move our upcoming growth in Geos. We felt it was a good time, even with that volatility I mentioned to increase a little bit and then lots of things go going forward.
On slide 5 here I'll just update you on a few small transactions for us that you would have already seen but maybe some of them. We haven't talked about overall I think it's worth mentioning that we stayed true to what <unk> been hearing from us which has been discipline.
As of early last year, I think we saw a market that.
We didn't particularly like.
Certainly felt like a bit of a seller's market.
On the combination of asset quality and price is being paid did not make sense to us.
We've still been able to find good value for real assets on.
Some of these smaller transactions and importantly, going forward I think that dynamic is starting to improve frankly.
Gold price volatility up and down we will do that for you last year. It was all pretty much straight up from first half of the year.
And were signed the C zone, some better opportunities that fit our pipeline that we'd like so we will continue to be active looking for those in terms of things that we have.
Closed on.
In April with the Spring Valley acquisition, which we quite like that was an increase mainly on the spring valley asset in Nevada that go on from a half a percent on ESR that we already had to between 2.5 and 3% multi million ounce deposit element in private equity hands, but we think thats 1 of the better.
Acquisition opportunities in the sector.
And happy to have <unk>.
Significant royalty on a significant good grade resource in Nevada.
We also in April.
<unk> or per hour offtake into an equivalent screen.
Bit of a cleanup transaction on that front to help our accounting going forward.
Good and positive for both us and the operator there.
And then on slide 6 the the most recent 1 was we haven't had a chance to talk about would be the acquisition of a net ESR on the low tech and <unk> projects using just go on mouthful, we call it <unk>.
As I suspect most people will.
Wired at 275% royalty there for $10 million U S. But important to note that there is a buyback there with proceeds going to previous operators. So we do expect at the end of the day that will get exercised so what we've been what we paid for as a <unk> 75% of the Saar.
For a $10 billion U S a significant asset in Brazil.
Obviously, most people know it's been non core to El Dorado almost since they bought it as there are.
Attention drifted elsewhere within their portfolio almost immediately post purchase but.
On a real asset to mine ounces and MNI, 1.8 million ounces of reserves on a good grade is permitted and construction ready importantly.
And para state in Brazil, where there is a long legacy of mining and so what was lacking there. We saw was a good asset that deserved building what was lacking was the operator willing to do it. So we're quite happy to see just yesterday G. Mining ventures has acquired the asset are in the process of acquiring the assets from El Dorado.
And there'll be working on feasibility within the next 6 months on updated feasibility.
A team of builders, it's a great carnival team well back.
We know them well, obviously seeing seeing some of their bills and we expect them to be fast tracking this asset production. So a nice a nice wants to add to the portfolio.
Moving to slide 7.
Just graphically the production by by asset for US again, as I said the asset base.
Performing quite well, we had a strong quarter from <unk>.
That has to do with increased tonnage both interest increased tonnage and higher grades were expected from as more ounces come from the Barnett pit.
That was a nice nice increase.
I talked about how we expect.
<unk> to be stronger for Eagle given their seasonal.
Effects of the mine there as well as their ongoing wrap up.
It was a good quarter from a CV perspective, primarily on grade as they still have some catch up to do on tonnage, but they had a really nice quarter on grade.
It was just a tick above 13 grams.
And we will talk a little bit about that line as well later in terms of some exploration success or potential success that they're seeing in front of them and overall as I said.
Pretty productive quarter on all of our asset base.
Switching to slide 8 for just a little bit more on a Canadian mill Arctic.
Excuse me.
I mentioned it was a strong tonnage quarter. It was also a good quarter from grade perspective.
The open pit continues to do what it does it just makes an awful lot of money for Mako in Yamana.
They are on track for the 700000 ounces of guidance this year.
Here's the important assets for both operators and our focus obviously remains on the ounces are delivered to us, but look we continue to look forward as to what the asset is becoming and continuing to evolve into the infill drilling on the underground.
His return.
Very good results.
As released by Agnico and Yamana are low.
That focus is obviously on east Goldie, we have a 5% royalty there that's worth <unk> 70 per cent of the mine plan is so that work was not unexpected, but obviously positive which you want to see that continuing to be the case.
And then in terms of upside the eastern extension that deposit.
Is getting a fair bit of attention as well Youll recall at 1 point there was 1 the whole day stuff up hole.
$46.80 in the bottom right, which was 1000 meters away that had a really nice interval of grade and width followed up on by another.
Which hit similar type mineralization, where they expected it but.
But importantly, also kind of have this offset zone 400 meters over and you see it's tough to follow but you see that.
On the bottom left hand side of the picture as well so early days.
In terms of trying to turn that into Alex's, obviously and in line of allowances, but certainly hugely.
Important I think.
The upside on the potential there is certainly is important so we expect that to continue to be active on that front, they've got a big drill program. This year.
And we expect continued until results and.
And potential upside results from that program as well.
Okay.
Onto slide 9 just quickly on a couple of other core assets, we haven't touched on all of them here certainly we're happy to talk about all of them, but but wanted to kind of give you the.
The core changes, if you will or updates and catalysts from momentum perspective.
That expansion is still going quite well.
In Chile.
Would have seen that we bumped it out obviously with direction from the operator from that expansion being tighter on at the very end of this year to Q1, so pretty nominal.
Pumps into 2022.
It has to do with Covid issues at.
1 of their main contractor so again, if if those issues, which everyone is dealing with frankly means.
Youre, adding a month or 2 to the program that I think at the end of the day, it's pretty trivial we're quite happy with.
Where things are going at that expansion.
And then.
From a slight increase perspective, you would have heard US say previously that were expecting 5 years of $1.2 million ounces of silver annually for the first 5 years. Following expansion, we bumped that up to 1.3 million ounces annually of silver based on guidance from the operator.
On the Eagle side.
H 1 saw just just shy of 60000 ounces produced by Eagle They've got a guidance of 180 to 200 so.
Work to do on the second half, but that's that's just the nature of being a line, where they don't stack or in the <unk> 3 months of the year plus the ongoing ramp up. So we look forward to those ounces thought we might get a little bit of an uplift in Q2, but I think we will see that uplift in Q3 and certainly in Q4. So we expect a stronger second half there. We also look forward.
To them continuing to now minus built and it's on the process of ramping up start to put more and more focus on the exploration side of what is a very large and.
And seemingly prospective land package as.
As well as their previously announced plans to once they are ramped up try to take it even further to 250000 ounces.
On slide 10.
Just really quickly on on 2 small, but nice contributors that we have coming our way in Mexico.
Antenna line of Minera, Alamos, where we have a 2% on ESR should be producing first gold imminently from their heap Leach asset.
And putting out more disclosure on what that asset looks like for the longer term.
That debt.
A nice catalyst.
Catalyst for us.
Second half of this year and then into the beginning of next year first majestic or Matondo deposit is expected to come into production. They are working on some test mining now updating resources and low working towards a pre feasibility study.
Half of this year. They are also active on the exploration side. So those are.
Not huge but certainly a nice contributors just starting out in terms of significant mine life there.
Onto slide 11.
Focusing on the <unk> assets.
So first and foremost the caribou camp.
Again, some of you may have heard the.
On the update at 9 o'clock. There is an expected 200000 meters to be drilled in caribou this year they've done.
Of that to date.
So.
Have been catching up actually it was a bit slower to start of the year again, there were COVID-19 delays you can't ignore them.
We need to kind of quarantine folks here and there.
At times, the fresh debt. So the spring thaw also deterred them a little bit on the ground was softer than expected. They went from 10 rigs down before and now they are back up to 10 rigs so catching up.
And you would have seen or maybe just before that.
At times <unk>.
The delays on assay labs, we are quite ridiculous I think at the peak it got to 3 or 4 months waiting for assays. There now down back to regular levels. So you've seen a catch up of exploration news coming up from O. Deb I think they've been on a steady clip.
An exploration update every 2 at most 3 weeks and we expect that intensity continue and lead into a new resource.
Later this year.
So that delay has pushed that resource a little bit later into the second half than we first expected and as a consequence pushed out the feasibility into the first quarter or more.
Cautiously the first half of next year important to point out that the permitting timeline remains unchanged. The final EBITDA was submitted in late July that's the document that drives permitting time line. So thats still anticipated in the middle of next year.
Again bouncing around a little bit, but that infill drilling is going well, it's connecting the dots as was expected. It's also pushing the resource potential down at depth.
<unk> some zones that we expect it will be connected so all of that is going well and the underground bulk sample per meter count Mountain is also a good achievement on by the team beneficial to the timeline to be able to get underground early allow us from some testing as well a growth headers on ore sorting so making good progress technically.
And then moving forward I did said I'd come back to the.
The Bonanza ledge side of things.
Worth remembering that that's a different beast, it's a satellite deposit which is just permanent for small small scale mining has undergone infrastructure. So it's somewhere you can get into but it's not the main deposit for instance, it is.
Close to surface, it's Scott poor ground conditions at our fault zone. So it's not where you would want to mine, but it's where they can line today. It allows <unk> to train the staff restart the mill.
<unk> got some upgrades there that are useful for both Bonanza ledge on obviously caribou and most importantly, it allows the remediation of the historical tag pile, that's on surface from previous open pit mining and not material.
We used as underground backfill once the voids have been created and put it in so.
Non cash impairment, there because things that cost us a little bit more than what was expected.
Because some ounces have been left off the table.
Production has been pushed back by about 6 months.
But the caribou production is still expected to start at the same time. So the period in between where you can mine with Bonanza ledge.
Portion has been reduced sales.
Happy with the progress that's being made at caribou on the main asset and certainly happy with the technical achievements there.
And then on the San Antonio side.
As well the team has been quite active there.
We'll be drilling 45000 meters in 2021, I think you guys know sound likes to drill so he's a bit behind on on that 1 but they are they are looking to catch up.
4 rigs turning there and if I had to guess I'd assume there'll be an update in.
In August September so far the confirmation on work that was.
That was planned to.
Convert inferred resources to higher categories, and and hopefully fill some gaps is going well as our understanding so we look forward to that update as well.
And then in terms of catalysts.
Catalyst there the existing stockpile on surface.
We expect it to be under Leach by the end of the year and then more importantly, so it's a nice <unk>.
Nice to do because it's sitting on surface, but more importantly, the bigger permit for the <unk> open pit heap Leach is also expanding.
Excuse me by the end of this year with construction starting in Q1. So that hopefully is a 2022 production event for us as many of you know the crushing plant has already been purchased.
Components of it some of them are already on site. The rest are on their way. So they are also making good progress there.
Yeah.
At windfall I'm on slide 12.
Again, some of you have been falling what I think are exceptional exploration results that continue both from an infill on ex expansion perspective at windfall.
We highlight a couple of year over 2000 grams over 2 meters.
2.2 meters over 400 grams.
I think in the last press release, they might've been 6 results of over 2 meters on over 200 grams, so pretty stunning exploration results the upside there the infill on the upside there continues to prove out better than expected.
Including a new discovery, a kilometer away that needs follow up work, but.
Thank you.
The team there is doing an exceptional job advancing the asset into development phases with a feasibility expected in the first half of next year.
Production in 2024 type time frame, but also continuing to make the asset bigger and providing some upside there.
And then at upper Beaver, which is maybe he'll asset where we have a 2% MSR.
They are working on share.
Drilling of Theyre, all on conversion and then potential expansion.
The grades are coming in quite nicely both for both for gold, but in particular, the copper grade is seemingly coming along quite nicely.
Some of the new results, we highlight 1 of them there and that should have a significant impact on the size and potentially the grade.
On the resource.
I've heard talk about a potential other structured structure at depth. So all good news, which will be incorporated into the study in 2022, and hopefully prove to be the construction or the decision point again, if you've listened to some of the commentary coming out of.
Nico.
Calling it a mind today and permitting is what will drive the timeline there last I heard from them guiding to production and this is notionally guiding I should say.
Around 2027.
Okay.
Okay.
Just quickly maybe on on some assets that we haven't put in the deck before I pass it onto Fred to give you a little bit more color on the quarter.
Again in keeping with that that day.
<unk> of our assets working for us.
At Seabee I touched on earlier was a record quarter in Q2 in terms of production driven by higher grade.
They also encountered some unexpected high grade at the edge of the resource, which theyre going to be following up on next year that stope was closer to 15 grams.
Island put out their best hole ever it was 20 meters of 70, some odd grams per ton outside of the existing resource and onto our 2% royalty ground theyre drilling $25 million.
<unk> got $25 million exploration budget. This year, so that they are heading the asset hard and are well on their way towards their expansion into 2000 tonnes per day.
Permanent currently the shaft expense, but progressing well and on <unk>. They continue to progress at El Dorado with the underground ramp on track that will help their my overall in terms of reducing costs, but it also provides better access to drill some of the other <unk>.
Resources down there. So overall good news across the portfolio of really good quarter and I'll, let free.
Fred on slides, starting on slide 13, and walk you through some of the particulars on it.
Thank you Sandeep.
From a mix of this headache newsome Anthony good morning, everyone. Thank you for joining US today first I would like to remind everyone that as we consolidate the balance sheet P&L and cash flows of our Cisco development. We are providing additional segment information in our financial statements MD&A and press release, where we split our results from.
Our royalties and streams business and results from our Cisco development.
As mentioned by Sandeep, another great quarter for Cisco in Q2, with strong deliveries of gold and silver, which led to record revenues cash margins and operating cash flows from the royalties and streams business.
Our operating cash margin on our royalties and streams reached 94% or 97% if we exclude deal on a volume and stream.
On page 13 of the presentation, we recorded record revenues from royalties and streams of $49.9 million compared to $28.7 million in Q2 of 2020, which was of course impacted by the Covid pandemic at the time.
Cash flows from operating activities were $30.9 million on a consolidated basis for the royalties and streams segment alone cash.
Flows from operations reached $37.3 million compared to $16.8 million in Q2 of last year.
If we go on page 14, we present, a summary of our earnings and adjusted earnings the consolidated net loss to our Cisco shareholders was $14.8 million or <unk> <unk> per share in Q2 of this year compared to net earnings of $13 million in 2020, or <unk> <unk> per share day constantly be too.
In 2021 was due to impairment charges recorded by Cisco development of $40.5 million, including 36 million on day Bonanza ledge too.
Project.
On a consolidated basis adjusted earnings were $20.2 million or <unk> 12 per share comprised of adjusted earnings of $23.9 million or <unk> 14 per share for the royalties on stream segment.
And an adjusted loss of $3.7 million from our Cisco development on <unk> per share.
On page 15, we have a summary of our quarterly results with additional details for the royalties and streams segment.
Including revenues of $57.2 million compared to $41 million in 2020, and gross profit of $35.7 million compared to $19 million last year.
On page 16, we present the breakdown of our cash margin for Q2, the cash margin on our royalties reached $36.3 million and the cash margin on our streams amount to $210.6 million. Our total cash margin reached a record $47.2 million in Q2 of this year and for the first half.
Half of 2021, we generated cash flows.
Close to $94 million.
And finally on page 17, you'll find a summary of our financial position our consolidated cash balance was $255 million at the end of Q2, including androgen 10 million from Cisco gold royalties.
And onward $45 million from Cisco Theres announcements.
Cisco gold royalties and with investments, having a value of $188 million. In addition to our investment in our Cisco development value would at the end of June at over $700 million.
Our depth was table on that 400 million with over $530 million available under the credit facility, which was recently increased and extended.
I will now turn the call back to Sandeep <unk> for closing remarks and questions.
Thanks, a lot Brad.
Look again at the risk of repeating myself, another very good quarter of consistent quarter from.
A diversified asset base that is really performing well.
And frankly.
Our growth assets are coming along and progressing well I think theres still largely discounted or heavily discounted, but set us up well for the coming years, so with that happy to operator.
If there are any questions.
Thank you as a reminder to ask a question. Please press star followed by the number 1 on your telephone keypad.
I am calling platform close I guess, Joe at least on May <unk>.
Your first question will come from Josh Josh Wolfson from RBC capital markets. Please go ahead. Your line is open.
Thanks, Good morning.
First question I had was on Mentos.
Instructions progress at least on a percentage completion basis seems to be tracking up still fairly.
Fairly significantly and 92% you mentioned in this quarter. So it would it would appear to be.
Completed at least from a construction basis in the third quarter I'm wondering what the differences between construction completion and when that ramp up actually happens and then should we expect maybe a weaker third or fourth or first quarter perhaps.
And that commissioning process starts.
Yes, no. It's a good question, Jonathan and good morning, I think Youre right I think the difference is kind of a mechanical construction completion, if you will.
On the 92% level when we talk about timelines for us that's not what we're focused on we factor in the lag.
They were related to us in terms of when ounces are supposed to start coming out or tons are supposed to start coming out more so so I would hope for that.
And in Q1, we can start to see some increase in production, but maybe to be more.
Our conservative.
Pulp for Q2 that impacts that.
Those ounces wrapping up.
Either way I think it's for US it's right around the corner on I would.
I would commend them for the fact that Covid anywhere has not been easy Covid on Chile has certainly not been easy.
So to keep things on track as well as they have I think is positive for us.
Okay, and then should we expect to see.
Lower deliveries in the second half of the year from from that asset I note, obviously first half of the year.
Even without let's say potentially a small contribution from San Antonio Santana.
The upside from Eagle <unk>.
Racking towards the higher end of guidance. So should we should we expect.
The company to be more within guidance.
<unk> is a bit lower.
Look I think mental as well I mean, there's always variability mine by mine again, especially when you are the byproduct as opposed to the.
The main commodity, but I think overall, we've been exceptionally happy with Mentos and the first half of the year, we don't necessarily see any reason.
And the mine plan and why that should change in the second half of the year.
So no I think our assets barring that normal variability that I talked to you about so I think we're happy with.
That core asset, it's doing exceptionally well for us and our hope is.
With Eagle ounces coming in maybe we can start tracking a little bit better than the midpoint frankly.
Okay. Okay. Another.
Another question on the credit line increase.
When the convertible with.
<unk> <unk> was due earlier this year you guys drew down on the credit line and Theres. Another convert that's due next year should we be thinking about this credit line we used.
Or maybe obviously, there's flexibility here, but potentially use towards repayment of that facility or is this.
Potentially for transactions that you see on the horizon materializing.
Well look I think it can be a bit of everything.
Our hope is that that converted in the money come the end of next year with sort of a year and a half.
Volatility has worked against us in the last few training sessions that can work for us in the future and we certainly think there's a lot of value in the asset base to unlock.
Above and beyond that but we don't plan that way clearly so.
Yes, that's certainly a fallback in our minds, it's certainly a fall back for the convert at the end of next.
Next year.
That happened that would just be a shifting of debt from from 1 place to another at a lower cost of capital we pay a 4% coupon on those converts.
Currently our credit facility.
On the 2 to 2.5% range. So thats certainly an option that we've kind of crafted for ourselves a lot will depend on what happens between now and then Josh We've got cash we've got cash flow.
Significant investments.
And then we'll see what we choose to do on the growth side, but that's that's certainly something we'll continue to kind.
On a managed depending on how we how we go into next year and a half, but yes, absolutely can provide a fall back for that convert from that.
That was 1 of them that was part of the thinking there.
Great and then last question.
Wasn't able to dial in for the <unk> call.
Is there any more information on the timing difference for the feasibility study now at caribou.
Sure.
Yes, yes, sorry.
I hope I alluded to it earlier, but I'll do it again.
So timelines I think I mentioned that the resource update into what kind of reserve is going to be a bit delayed they were behind on drilling there now catching up and more importantly, the assays are catching up obviously, you don't want to be drilling blind all the time you'd like to be benefiting from the the results that you've already spent money on.
Working towards the resource update in the second half of this year that then pushes the feasibility.
H 1 next year conservatively hopefully it can be Q1, and I think that's what Sean said this morning as well.
So feasibility into early next year, but the permanent timeline remains unchanged.
As the EBITDA of the final EBITDA was submitted in very late July and Thats really whats driving the permitting timeframe at this point not the feasibility.
Great. Those are all my questions. Thank you.
No problem.
Your next question comes from Ralph <unk> from 8 capital. Please go ahead. Your line is open.
Good morning, guys.
Thanks for taking my questions just wondering if you've had some.
Preliminary discussions are.
The relationship with with G mining ventures as it relates to Tc.
And what are sort of the next steps from them beyond the updated feasibility study.
Any thoughts on when this could come into cash flow positive on my numbers, it's kind of 1 of the more robust IRR is in the portfolio as it pertains to.
Discounting it at the moment of commercial production, but just wondering if you could give me more color on actually turning that into cash flow.
Yes look I'm not sure I can I certainly can't give you their view because we have not talked about it. Obviously there are too. Many construction groups that are incredible and Canada, but certainly not on come back. So we group, we know them well the group knows them well.
And we saw the formation of <unk> mining ventures that is.
Earlier this year I guess it was so <unk> been looking for them to see what they would do next very happy it coincides with an asset that we picked up a royalty on I think what I'd say is what we saw there was an asset worth building.
Exactly.
Where when and how obviously it was non core to El Dorado for reasons, they've got other things they can do.
They are focused on and that's that's fair enough, but it wasn't asset worth building.
And and.
And Thats, what we saw on we're happy a group like G mining is taking it over.
We know them to be felt that the builders.
Not the over promotional type they just get down to the business on that will serve us well on this asset can put that down with the permanent construction ready asset they've got backing from spot on other supportive shareholders. So there is certainly capable of financing again.
And we do expect them to fast track that asset.
Looking forward to frankly, they're here any update from myself.
Okay.
Yes.
And.
Got it.
It was a small transaction, but it's interesting to see your Cisco gold royalties do something on the carpet streaming space and just wondering when you looked at that opportunity on the body of work that you've done is debt are you taking the approach that it's sort of complimentary to the ESG strategy or do you think from and so on IRR perspective.
Carbon streaming can can actually compete with precious metal streams for investment dollars.
It's both frankly, we clearly are focused on doing things more ESG perspective, when we looked at that.
And we started with a small investment is still a small investment, but we bought ourselves the right to participate in 20% or any other transaction. So for us. It was a front row seat to a new business line extremism. So it fits with ours, we understand it well obviously the assets are different.
So we needed we're happy to rely on that team to convert those opportunities we're kind of learning.
Carr with them as they go.
But.
And our portfolio, Ralph we can't reduce our carbon footprint, where reliance on our partners to do that for us and certainly we've chosen some phenomenal partners and great places good assets that are doing just that but for us. This is something proactive we can do.
To be part of that.
Zero push so we think it makes a ton of standard, but it's also financially driven.
<unk> that we're seeing.
That can come out of that business or mid teens kind of 15% type IRR deals on our possible I don't think we're seeing a lot of those on the gold space right now.
So I think there is potential there and frankly.
That's with <unk>.
View on carbon pricing, which I think is the easiest thing to say that don't know whats happening in the future, but I certainly expect the cost of emitting carbon to increase and hence the.
The price of these carbon credits to grow as well on that could end up being exponential frankly.
Small dollars front row seat happy with the investment line.
The deals are doing so far will likely take our 20% piece.
All of them, we have the time to decide on that but but liking what they are doing and it is.
Both financially driven and any ESG driven we do 1 or 2 of these deploy a little bit of capital.
Based on our small footprint already will be net.
Net zero not in 2040 or 2050, but almost immediately and I don't just mean the office space I mean, our indirect exposure of our partners. So that's how we're how we're looking at it.
Excellent answers thanks Sandeep.
No problem. Thanks, Ralph.
Okay.
Your next question comes from Cosmos <unk> from CIBC. Please go ahead. Your line is open.
Thanks, Sandeep Fred and team.
Maybe my first question is on a royalty that you did not mention.
VAALCO.
I think theres been a recent positive development of Falco resources.
They're raising money and $10 million clearly not enough for the entire capex.
I also see that.
<unk> is advancing a.
$10 million as well on the silver stream so.
Maybe can you talk about how this kind of fits in to the growth profile of your portfolio and.
Maybe you can talk about the recent agreement in principle at Glencore and also I think they are expecting some kind of Ohio.
By Q3 as well Sandy.
Yes, no. That's a great question Cosmos here, you've got me in trouble I share that talked about VAALCO I run the risk again.
Luke.
And there was good progress made there frankly so.
Remiss, if I didn't bring it up so.
I think first and foremost.
The.
The term sheets that they got into on the Oes the accurate on the.
The operating license as you point out was a big catalyst a significant catalyst something that we've been waiting for for quite a while I think a lot of people have been waiting for quite a while certainly the VAALCO team.
That term sheet as being turned into.
A full agreement and that's happening as we speak I forget exactly when Luke said he was guiding for that but it's pretty soon.
In this quarter, so thats a huge step forward in the <unk>.
<unk> I think then becomes clearer happy that they touched on a little bit of financing from an equity perspective, obviously just to move the asset for 2 development Capex basically the permitting and development Capex.
We've chipped in didn't mentioned it because it was kind of a non event I guess in my mind, we owe them $20 million in the near term based on that agreement being finalized we're very happy with the progress they've already made on it. So pre funded 10 of it we'll be happy to do the next 10, when the agreements finalized and then the rest of our capital.
That comes in when it's.
Fully permitted add on financing of the full project so good advancement.
I know, it's something that people have been waiting for for quite some time.
It was not easy work, obviously, a lot of complexity there glencore is a massive group.
To get their attention and frankly build the trust from a group like Selco, because they probably didn't know what to Falco awareness Cisco was a few years ago. When things got started I think we've come miles from there.
And the teams are working exceptionally well so.
I don't know if ive touched on all your questions there, but really good progress happy that they've got some funding in the bank to push the asset forward from a growth perspective, sorry that might have been the last piece of your question. It's a big chunk for us it's a massive stream.
It's a lot of silver ounces that we get from that asset.
6 million ounces of reserves gold equivalent that's 9 to 10 million ounces of gold equivalent resources and matters.
We don't exactly know the timeline financing will be a hurdle, but I think it's 1 of those assets that will have significant.
Port and come back we bought RSP components that are there it would be funded.
And I think it's 1 of those things that will be tough until it's done but it's important.
For us and I think it is certainly worth building I know habits its moment in the Sun.
Of course that does touch on those on all of your questions Yes.
Yes, it did.
Maybe switching gears, a little bit as you mentioned.
I'm glad to see that as well, 10% increase on the dividend.
Sandeep I'm just.
I'm trying to take a step back are you targeting in terms of.
Capital return are you targeting any kind of percentage of your cash flow that you might want to return to investors is that how you look at potential further increases in dividend is that why you decided on the current increase of 10% on the current dividend.
Mainly just throwing darts at the board.
[laughter] did.
Obviously, we are.
We have a view internally as to the amount of cash flow, we wanted to redistribute to investors.
Historically I think you've heard me say that at times, we were in the mid <unk> got as high as 40% payout ratio.
This year with the previous to the bump.
And based on commodity price assumptions and ounces for this year, we were in the low <unk>. So we've bumped it up.
Importantly.
There is still room to go in the future. Obviously, we're a little skewed is based on the last week here, but felt it was on the business is still really strong EBIT at much lower gold prices. This is a very sustainable dividend, but.
Anytime you change that you want to make sure it's for forever because thats, how we think about these things and certainly our business is able to do that so.
Hopefully people see it is what it is it's a significant sign of confidence in.
In our business, 1 that's working exceptionally well and as those ounces start to add to the tally.
Distributing cash flow back to shareholders will continue to be important for us. So we haven't we haven't.
Communicated.
Our payout ratio or a mechanism for instance, but we certainly.
Of that think of that way internally.
That's the byproduct increase yesterday was the byproduct of that.
Great and then that leads into my last question here Sandeep on the.
Broader picture of capital allocation.
As you talked about.
Clearly, it's been a bit of a seller's market. However, with the recent from malaise in the commodity prices are you seeing better opportunities in terms of potential acquisitions, and then on that as well.
No you have different strategies. There is the incubator model I don't think you mentioned that word today, but I think it is still there and then there is also the more kind of traditional royalty acquisitions, where are you seeing.
More of these opportunities.
Look I think there's opportunities.
2 questions there there are opportunities across the board.
Certainly anyone with a royalty our royalty portfolio and then either brought it to market or been thinking to bring it to market or has been inbound bye bye all of us most likely.
So I think positively and look I was maybe 1 of the first to say it was a seller's market last year and everyone else is saying the opposite.
I think that you can.
Judge what it looked like I think last year when the gold price was running so hard on the first half of the year.
That dynamic trailed on until the end of the year. When you have gold price is more range bound and you have the on the risks of downloads as well as up so I think the dynamic is a little bit better. This year in terms of getting deals done for us on the royalty and streaming fibre for everyone on the royalty streaming side.
So I actually see the pipeline looking better than it did last year. So we're optimistic about it frankly.
In terms of the incubator model of the accelerator model still part of our business on important part of our business. It's.
Generates for US is the early stage. So it continues to kind of.
For small dollar investments, which we think are going to be give us 5 and 10 Baggers. It continues to populate the back end of the portfolio and see those things kind of evolve and mature.
And.
It was an important part a more important part of the business. When we were kind of starting out and needing to kind of flesh out our portfolio. We now have 1 that's robust.
The entire spectrum in terms of producing asset near term growth assets and and longer dated assets. So.
So yes, I think we're continuing on that path, if we see good value there we will take it.
But obviously the focus is for all of us on near term assets things that can hit the bottom line sooner.
And.
And Thats what were low theyre looking for if we don't do anything.
Fortunate.
There was a number of companies that needs to catch up on growth spending we werent 1 of them, we have done quite a bit of it leading up to 2020. So that growth is already embedded in the company. We can grow double digits for several years based on not spending another dollar but thankfully. We are we have found some smart things to invest in and going forward I think that will continue to be there.
Case.
Thanks, Dan day, those are all the questions I have thanks again.
Problem Cosmos. Thank you.
As a reminder to ask a question. Please press star followed by the number 1. Your next question comes from Kerry Smith from Haywood Securities. Please go ahead. Your line is open.
Good morning, Sandeep and trade channel.
Could you maybe give me a bit of an update on what's happening at Renard diamond prices seem to have strength and I'm just wondering what the strategy is there now.
Sure. Good morning, Good morning, Kerry Whats the strategy remains the same it's an asset that.
We want to kind of work back our way to a positive paying scream on that's the SPN goal that hasnt changed.
Youre right and I think you would have picked us up in our MD&A that the pricing has continued to firm up.
Not just for Renard, but on the diamond sector overall.
<unk> pre COVID-19.
Excuse me.
Pre COVID-19.
And the $70 per per carat range consistently had dipped down even lower obviously and the worst of Covid when people can travel for sales et cetera.
We saw that firm up to kind of the $80 per carat level almost immediately post COVID-19.
And then stay there for a little while on that we've seen another couple of bumps in the lost sales culminated culminating in the last sale at $93.50, a carat U S. So happy with that uptick in prices, that's what that mine needs to be profitable.
And.
Theres still silver stream still some debt there, but happy that they are they are starting to make some cash flow and can start to work their way out of that situation. So positive momentum needed a little bit more I would suspect, but happy with that so far and then thereafter, it's <unk>.
No.
Where is the right 1.
Does the REIT structure for that asset to reside and where we're not a natural owner of it we just want to get back from getting a paid screams. So that's something we continue to work on in terms of finding.
On the right solution for.
And at $93.50, a carried or small share call it $100 per U S would that day.
Inadequate long term price too.
<unk> reinstate the.
Stream.
Yes look we're having those discussions as we speak the good news is they're making money.
Is it enough probably not just yet, but they're making money at $93.50.
Yes.
<unk> committed to deferring R. R.
Our stream proceeds into I think it's April of 2022.
So we're having those discussions as we speak but certainly happy with where things have gone and don't want to get too far ahead of myself because.
We've taken taken it on the chin for that asset I'd, rather it would be a positive when is well and truly is a positive but really happy with the progress <unk> made so far.
Okay. Okay. That's good thank you I appreciate it.
No problem.
Your next question comes from Puneet <unk> from IAA capital markets. Please go ahead. Your line is open.
Hi, Good morning, just a quick 1 from me Youre clearly still trading on a discount to your peers with the volatility on the gold market, how youre looking at the.
And CIB for the rest of the year.
Hi, Puneet, Yeah no problem.
Yes look we still think we're cheap as well.
Just say that I think we typically have that view that we have made good progress on stock had done well to kind of get to the levels. It was.
We saw a little bit of profit, taking which is normal when youre kind of hitting your 52 week and all time highs.
But clearly the last the last week has been tough on all of us, especially tough on us. So we see a ton of value on our stock.
On a blackout today.
And have been for a little bit of time, but.
We do like our stock so.
We've said, we will look at the <unk> when the stock is really cheap we didnt use it in Q2, the stock was doing quite nicely. So we didn't chase it up.
But in situations like we're in now.
You might expect us to be more active on that between the NCI had been the dividend, we certainly have and will continue to.
To to get cash flow back or get cash back to shareholders.
Okay. Thanks, Andy.
No problem.
Thank you.
We have no further questions I would now like to turn the call back over to Mr. Sandeep <unk> for any closing remarks.
Great. Thanks, operator.
For joining us I think we've we've gone through a pretty good update so I won't keep you on for longer but really happy with where things are going and look forward to a strong second half of the year and forward to talking to you folks about it. So thanks for your time and have a great rest of your day.
This concludes today's call you may now disconnect.
[music].
Yes.
The House has ended this call goodbye.
A question so low.