Q2 2023 Osisko Gold Royalties Ltd Earnings Call

Good morning, ladies and gentlemen, and welcome to the Cisco Gold royalties Q2, two three results Kathryn skull. After their presentation. We will conduct a question and answer session. If you'd like to ask a question. Please press star followed by the number one on your telephone keypad. Please note that this call is being recorded today August 10 2000.

'twenty three at 10, a M eastern time.

Today on the call we have Mr. Paul Martin interim Chief Executive Officer, Mr. Fredrik, <unk>, Chief Financial Officer, and Vice President Finance and Mr. Ian Farmer, Vice President of corporate development.

I'd like to turn conference over to our host today, Mr. Paul Martin.

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Hey, good morning, everybody and thanks for being on the call. Thanks, Paul Martin the interim CEO of Cisco Gold royalties.

I'll run through the presentation and then we'll open up the lines for questions.

Fred any in the room.

Or anything that I can answer.

Participants on the line you can submit your questions in advance through the web page.

The presentation is available on the website as well as through the webcast and.

And as stated I am the interim CEO have been committed to assist the board in leading the company.

During the transition period, we have also made the commitment to remain in the CEO chair until the board has completed its process and announced a permanent successor.

Please note there are forward looking statements in this presentation.

And that all amounts are in Canadian dollars unless otherwise noted.

We're pleased with the performance in the second quarter, both from a Geos earned perspective.

And from a transactional basis.

74645, Geos earned in the second quarter, and nearly 11% increase over the comparative quarter.

With 47756 Geos for the first half, which is nearly a 15% increase over the comparative period.

What's the Cisco in a good position from an annual guidance perspective.

Gross cash margins margins are 93% were maintained in the quarter and for the year to date.

The company had $70 million in cash at the end of the quarter and declared and paid its quarterly dividend of <unk> <unk> per share during the quarter after increasing it by 9% from five five cents.

Increases in revenues and operating cash flows followed the increase performance and Geos.

And represents a 35% increase quarter over quarter.

And on an annualized basis represents operating cash flows of approximately $200 million.

Net earnings of <unk> 10 per basic common share.

Essentially flat compared to the prior quarter due to noncash items.

Adjusted earnings of <unk> 18 per basic common share showed an improvement over the prior quarter or <unk> 14 per share.

The company now has 23 producing assets.

Two from the prior quarter, including the first reporting of Geos from the CSA silver stream in Q2.

Which has an effective date of February one 2023.

Our geos earned come predominantly from Canada and.

And were derived 90% from precious metals, 62% from gold and 28% from silver.

I'll make some comments on some of the specific mine performances before speaking about our flagship operation.

Several operations have been impacted from the numerous forest fires across northern Canada.

And where are we likely will see some downside impact in the third quarter.

At Victoria's Eagle mine.

It continues to outperform expectations in 2023 key bright spot for Cisco.

Our strong start to the year in Q1, 2023, with Victoria, having confirmed the viability of year round stacking and heap leaching followed by record production in the second quarter.

However, as a result of the local forest fires and recent evacuation of the site Victoria feels it prudent to guide to the lower end of the 2023 annual guidance of 160 to 180000 ounces.

The strong performance at Eagle.

Helped offset some of the modest disappointment at Capstone <unk> Blancos operation, we're milling rates continue to lag phase one expansion design levels.

We took a conservative approach with Manto us on our guidance and we will continue to monitor the performance in the second half of the year.

Capstone noted with their recent quarterly results, but design rates are expected to be achieved in the fourth quarter.

At Eleonore mine it was impacted in the second quarter.

Where we had a temporary suspension for a couple of weeks due to the proximity of the forest fires.

And which we expect will impact the mind's Q3 production.

And obviously our share of Geo deliveries.

Although newmont has not changed the annual production guidance for the asset.

Given the two months merger with new Chris will continue to actively watch where eleonore fits into the combined entities hierarchy of mines.

At Renard. It was also affected in the second quarter due to forest fires.

And with a loss of approximately a week's worth of production.

Wed like to commend all of our operators, including Stornoway further actions during this to ensure the safety of the workforce and in the successful restarting of operations.

Further at Renard, we expect Q3 sales to be impacted from this interruption as well as from a continued soft softness in the diamond price, which is carried over from the first half of the year.

Now over to our flagship asset the melodic complex, which had once again, a solid and predictable quarter and remains the company's most significant significant contributor to Geos earned.

This asset since inception has contributed over half a billion dollars in cash flow to the company.

And as many on this call know Agnico Eagle recently provided an update study covering the underground extension of the operation through to 2042 at a steady state of 500 to 600000 ounces per year.

The vast majority of this extension falls on our 5% royalty claim block.

The study incorporated only 57% of the existing resources and the extension significantly increases <unk> value as a shared asset to Cisco.

Okay.

The company has maintained this guidance for 2023 and will provide further update as Q3 release.

And as you will have seen from the press release. The company has declared its third quarter dividend at <unk> <unk> per common share.

On the transaction front I'll speak to the two newest transactions and then come back to CSA.

At Gibraltar with the acquisition by Telecinco of so Jet's 12, 5% interest we were able to amend the existing silver stream and increase it by 12, 5% to 87, 5%.

Just over $10 million.

On an asset which is well known to us.

Further to this the step down set down delivery threshold was extended resulting in an additional $1 5 million ounces of silver to a cisco towards the tail end of the mine.

And just after the quarter end, we also closed the hot chilli, 1% copper and 3% gold MSR royalties.

On the very exciting Costa for Weibo deposit in Chile.

This asset ranked highly in months.

The best undeveloped copper projects in the world and when combining the royalties funding with the release of a positive.

Generated a significant positive movement hot chilli share price.

Let's go to the <unk>.

More significant CSI transaction.

On June 16th through the company's Bermuda subsidiary, the company announced the closing of the CSA silver and copper stream.

Following metals acquisition Limited's acquisition of the Australian based CSA mine from Glencore.

For full details of the acquisition please see our press release dated Dave.

Data June 16th on the website.

It includes a silver stream, representing a 100% of the payable metal and copper royalty, which ranges between three and four 875% until 33000 metric tons are produced.

And then to two 5% thereafter.

The copper stream will become effective in mid 2024 on the anniversary of the June 15 to 23 2023 transaction closing.

Combined these two royalties.

Were purchased for $150 million U S.

Cisco further invested use $40 million in the equity into the company.

The purchase price was paid with 16 million in cash and.

And drew U S $130 million from our revolving credit facility.

The company maintains a roper for up to seven years on any project the company advances.

<unk> provided a Cisco Bermuda hold 5% of the issued and outstanding common shares of the company.

We're following the.

The new operators impact on this operation and believe we will not be disappointed with the team led by Mike Mcmillan and their efforts on improving the operations overall performance beyond that achieved by the prior owners Glencore.

On the balance sheet I will reconfirm that these are all reported in Canadian dollars.

And after factoring in the CSA transaction, we have net debt of $250 million, placing us in a strong position relative to our peers.

And well and.

Which is well below $200 million in U S dollar terms.

The revolver has $230 million in available capacity.

Considering the uncommitted revolver accordion and the covenant performance is exceptionally strong.

On our investments held on the balance sheet, we will continue to balance the need for incremental funding against our perception of what fair value is for these various positions.

As previously noted Cisco now has 23 performing assets and a significant portion as noted by the hatched lines are either an expansion extension or ramp up helping to underpin our near term growth profile.

The Cisco continues to distinguish itself from its peers due to the depth of its exploration and development assets, which exceeds a 180 properties and which is heavily weighted to being located in North America.

Please be advised that we're planning to organize an investor day likely in October where we'll have our corporate development and technical teams present to take more in depth on the exploration and development portfolio.

And if we can arrange it here from some of our key counterparties.

But let's talk about one of those now.

Better Patriot battery metals released its maiden maiden inferred resource at <unk> five.

Totaling 140 million tonnes grading, 142% lithium oxide immediately making it the largest lithium resource in the Americas.

Concurrently they announced a strategic investment into the company for Canadian $109 million.

For a major industry player and hard rock with lithium corner store Albemarle Lee.

Recall that a Cisco holds of 2% MSR on lithium covering approximately 90% of the CV side resource.

As well as $1 five to three 5% royalty on precious metals.

Worth highlighting is the Patriot analysts' consensus values.

Corvette or the CV fiber source anywhere from between U S. One five to $2 5 billion, depending on the future lithium price assumptions.

This will be an exciting asset to watch as a future supplier of this key material in support of the worlds push towards electrification.

In closing the Cisco remains extremely well positioned.

To continue its growth path and targeting a 35% increase in Geos earned as shown in its five year outlook to 2027.

Further to this.

Positive catalysts continue to unfold across the asset base as indicated in our Optionality arrow to the right.

That will further add to our growth towards the end of this decade and beyond.

A couple of examples include <unk> recent $30 million investment in the Highland copper is white pine North project.

With the new JV now looking to advance the project through to feasibility.

And with the funds received allowing Highland to also push forward of copper with.

And the upcoming final feasibility study.

From <unk> 32.

<unk> expected in the second half of this year.

And on that asset while much of the focus has been on the company's recent write down due to a higher than previously expected capex number.

Cisco's business model Insulates itself from this issue and we have no doubt that our partner will continue to push forward with this material project.

Finally, and when factoring all this in while also considering our cisco's current relative valuation as touched upon on the final slide in this tax in the stack, which is in the appendix.

My opinion that Cisco remains the go to royalty company in the mid tier royalty space.

Operator, we will now open up the line for questions as.

As well as questions posted on the webcast.

And please note if we don't get to all of them before the end of this call. We will we will respond shortly afterwards.

Thank you, Sir ladies and gentlemen, we will now begin the question and answer session. If you'd like to ask a question. Please press star followed by the number one on your telephone keypad.

The question is would be announced that he would like to withdraw from the queue.

And number two.

You May speaker phone, please lift your handset before pressing.

One woman, who even though the compiled the roster.

Your first question comes from Ralph property with eight capital. Please go ahead.

Thanks, operator, and good morning, Paula I wanted to ask a question starting off with CSA and sort of the methodology on how you were thinking about attaching a valuation to the stream and the equity position as well sort of the total investment context then.

In this in your eyes is this really just sort of an optimization story on the part of the new operator or are you thinking there's optionality for step changes in throughput production or exploration.

Thanks, Ross and good to hear from you.

I think what we see is that that was probably an under under appreciated asset in the glencore portfolio.

And.

Knowing what <unk> done in the past we see.

Significant improvement to come through on it.

With the addition of our backstop copper royalty.

This is one we're very excited about.

Got you thanks for that context and just.

Second question on liquidity currently sitting in terms of availability of $500 million. If you include the accordion can you put that in the context of sort of the market portfolio of transaction opportunities out there in the pipeline that is potentially sort of sizes of $50 million to $100 million or some transactions.

A little bit higher than that I'm, just trying to get a sense of liquidity versus opportunities.

Yes, that's a fair question.

Think even without the accordion, we're sitting in.

Truong liquidity with respect to what we're seeing in the marketplace right now.

Answer that.

Okay helpful. Thanks, Paul Thank you.

Thank you. Your next question comes from John Tumazos with General Medicines very independent research. Please go ahead.

Good morning, Thank you for taking my questions.

Question <unk>.

I apologize if I didn't read everything I got the note five in time.

What was the $19 9 million dollar credit loss.

Loan to which the company.

And could you just.

The $6 7 million of impairment was related to.

Yeah sure John those are both very fair questions. So the first one.

<unk>.

We had three items I would say in the in the accounts for the quarter.

One being a gain on the Cisco mining joint venture transaction. So we did.

Reflect a gain of almost $20 million in respect of that.

It's.

A noncash item obviously.

We did have a reduction in our accounts receivable our loan receivable from Renard.

This was a balance that was created from the past restructuring at the operation, where we deferred our geos.

And that those amounts were setup as a debt payable given the decrease in the diamond prices, we felt it prudent to trim that number which is essentially what we have done in the quarter. Obviously, if diamond prices return that full value returns to us.

And then the asset impairment was a very small project, where the operator, that's come up dry and has essentially walked from the projects that we've written that down to zero what was the name of the project.

It was called hidden Valley.

In PNG.

Yes.

Okay second question.

15, 20% yeah.

For the stock holdings of affiliated companies.

Yeah.

RBC, Cisco mining et cetera.

Those that generate current return that's eroding screaming asked us.

Matching overtime.

Rather apply that capital.

To generate fee income.

Is that a reasonable expectation.

That circa 2026.

When the projects the voting.

No mining or in production.

Uh huh.

Would be a target time too.

Monetize the stock holdings.

I think.

I did answer that in my in my presentation.

Presentation, saying that we continue to monitor those investments all the time.

And vis vis what our capital needs are and yes, we will we will look.

To make the decision at the appropriate time as to whether we would decrease those positions are not as you well know.

Cisco development as an example.

Uh huh.

Is the company that requires additional funding to realize the value the value of those underlying assets and I think at the moment, we are comfortable to sit and be diluted and our position to the funding is used to increase the value of those assets.

Thank you.

Thank you.

Ladies and gentlemen, as a final reminder, if you have any questions. Please press star one.

Operator, it looks like we might be done.

Over to you Mr. Martin for closing remarks.

Okay. Thanks, everyone for taking the time and as you know we're available for follow up questions as and when required of a great day Bye bye.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

Okay.