Q3 2023 Osisko Gold Royalties Ltd Earnings Call

Good morning, ladies and gentlemen, and welcome to the Cisco Gold royalties Q3, 'twenty 'twenty results conference call.

After the 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. This call is being recorded today November nine 2023 at 10, a M eastern time.

Today on the call we have Mr. Paul Martin interim Chief Executive Officer, Mr. <unk>.

Two N Chief Financial Officer, and Vice President Finance and Mr. Farmer, Vice President corporate development I would now like to turn the meeting over to your host for today's call Mr. Paul Martin.

Thanks, very much operator, and good morning, everybody and thanks for joining our call.

This presentation is available on the website as well as through the webcast.

Firstly I'd like to address the organizing organizational changes and then proceed to the quarterly results.

Last night, Cisco announced that Mr. Sean Roosen step down as chair of the board continuing as a member of the board and.

In conjunction it was also announced that Mr. Norm Macdonald will be taking on the role as chair.

In addition to the changes made at the board level Cisco CEO search Special Committee has concluded its search for a full time, president and CEO and as you've all seen Jason that too will be assuming the position once we complete the necessary transition from his current leadership role at Liberty goal.

But no later than January two.

<unk> 2024.

First of all speaking on behalf of the board and all of our employees.

With a huge amount of gratitude that we acknowledged shown today for hesitation drive an emotional capital, but he has invested in the company for nearly a decade, including a spinout creation of a Cisco gold royalties back in 2014.

And over this period of time he has put everything he had into this company.

And Sean is exactly as he would self described himself multi directional thank Gary it looks to looks to challenge the norm. It is not comfortable sitting on its hands.

From the creation of a Cisco gold royalties with its 5% MSR royalty from the Canadian malaria to combine.

Arguably the sector's crown jewel precious metals royalty asset all the way to where we the company is today with 23, producing royalties and streams and over a 180 assets.

There are a few in this industry you would have the conviction to perspective.

I would say quite frankly, they've got to do with Sean has done and continues to do and he should be applauded for all of these qualities.

And let's not forget he remains as one of the top mine developers in this country and CEO with Cisco development, where we are the largest shareholder and where they are but they are focused on the caribou development asset, where we hold a 5% royalty.

And I personally would also like to thank Sean for his support over the past few months during my time as interim CEO.

Secondly, nor Mcdonald, who will be taking the role of chair following his appointment to the board at the last day AGM.

I have known norm for a long time going back to those days as a natural resources portfolio manager at Invesco.

Norm brings a fresh set of eyes and is an experienced and committed individuals who has extensive connections within the mining industry.

I know he will be a strong leader of the board going forward and a great partner to the incoming president and CEO.

So this serves as a natural segue to the other major piece of news from last night's release, the appointment of Jason that too is the new president and CEO of Cisco Gold royalties.

In my opinion, Jason will make a fantastic addition to the group here at Sysco.

And it's very easy for me to speak about Jason is I had both a business and personal connection with them, which takes back to my days at detour gold.

From 2009 onwards, he was our lead investment banker for seven years and was instrumental in garnering the bank support in financing the project, which today is now the biggest operating gold mine in Canada.

I watched Jason back then as he made a bold decision to leave the bank and move to Goldcorp.

First as VP corporate development, and then including the CFO position until Goldcorp was acquired by Newmont in 2019.

From there he took on the president and CEO role at Gold Standard Ventures, which was subsequently acquired in 2022 and then most recently took on a second president and CEO role with Liberty calls.

All in all what I would call a perfect mix of transit transactional experience along with leadership roles at both large and small mining companies along the way.

Cisco gold royalties will be in strong hands going forward with the combination of Jason semi individuals already make up what I believe is a very strong and capable management team.

So like those on the call I will be watching but the keen interest.

And that will move to the Q3 release.

So please note that there are forward looking statements in this presentation and actual results may differ.

All amounts are in Canadian dollars unless otherwise noted.

So on the highlights for the quarter.

We're satisfied with our overall performance in Q3, both from a geos earned perspective and from a transactional basis.

<unk> 3292, Geos earned in Q3 comparable to the third quarter in 2022.

With just over 71000 Geos earned in the first nine months of 2023 Sysco is now trending towards the lower end of its previously published guidance of 95 to 105000 Geos for the year.

We're expecting an improved fourth quarter at some of our key assets to finish the year, which will be offset partially by the shutdown at the Renard Diamond mine.

Achieving a final number towards the lower end would represent an approximate 6% year over year growth.

We had record revenues.

Just over $62 million and.

And maintenance of our year to date cash margins of 93%.

The company had just under $71 million in cash at the end of the quarter and net debt of $245 million.

With respect to our ongoing commitment to return capital to shareholders. The company declared and paid its quarterly dividend of <unk> <unk> per share in Q3.

And on the recently closed transaction front and a subsequent event to the quarter Cisco announced last week the acquisition of the Nnamdi.

<unk> royalty, demonstrating our ability to uncover and source accretive precious metals transactions.

We're delighted to add an MD <unk> as an asset that will make a meaningful contribution to a cisco as near term growth.

On the financial performance the increase in record quarterly revenues largely followed the fact that while geos from the recently closed CSA silver stream transaction were booked in the second quarter revenues from sales were received in the third quarter.

Sheltering in a new quarterly high watermark of just over $62 million.

We had a decrease in cash flows from continuing operations in Q3 as compared to the comparative quarter in 2022.

Despite.

Despite being impacted positively by higher cash margins.

But due to increased interest charges and higher G&A cost, which included severance charges.

As for the net loss in the quarter of <unk> 11 per basic common share I think it's best to focus on the quarterly performance rather than the change against a comparative quarter.

And the major major contributors.

The loss were charges to the carrying value of the Renard stream in loans.

These balances totaled just over $32 million before tax recoveries.

The result is the carrying value of this asset is now effectively been written off subject to an immaterial amount related to the potential remaining diamond sales.

In addition, the quarter quarter included charges for severance and accelerated stock based compensation totaling approximately $6 5 million related to the departure of the president and CEO and the termination of the executive role for the former chair.

Adjusted earnings of <unk> 12 per basic common share were marginally below the comparative quarter in 2022.

So moving onto our royalties and streams during the third quarter. The company had 23 producing assets, including ongoing contributions from our Cisco's newest cornerstone asset the silver stream on the CSA mine located in New South Wales.

And recall the associated in larger copper stream will kick in for a Cisco in June 2024.

Our geos earned come predominantly from Canada, and we derived over 90% of our geos from precious metals.

Being gold at 66% and silver at 24%.

And ill add some comments on some of our specific mines before speaking about a couple of other assets in greater detail Victor.

Victoria Gold Eagle mine continues to perform well in 2023.

Key bright bright spot for a Cisco.

Despite a two week wildfire evacuation during the third quarter, the minus still in great shape to attain its 2023 annual guidance of 160 to 180000 ounces.

The strong performance at Eagle has helped offset some of the ongoing modest disappointment and cap stone Mantels Blancos operation, we're milling rates continue to lag phase one expansion design levels.

Capstone is now pointing to early 2024 for resolution of the plant issues once the delivery and installation of the new handling and company infrastructure relating to tailings water management are completed and at which time Mentos Blancos is expected to consistently deliver nameplate.

Throughput rates.

The only new our mine was impacted as operations were temporarily temporarily suspended for approximately six weeks from early June to mid July due to the proximity of forest fires, which impacted the mine's Q3 production and our Geo deliveries.

With the mine now back up and running safely and Cisco is expecting a rebound from the operation in the final quarter.

And almost like a broken record the Canadian melodic complex had yet another impressive unpredictable quarter and remains the company's most significant contributor to <unk>.

And further are there in terms of the underground progress at Odyssey made during the quarter Agnico Eagle completed and commissioned the paste backfill plant, which should see underground mining rates improved to complement the majority of the current ore being sourced from the Barnett open pit.

Also on the good news front metals acquisition limited had a solid quarter with record ore throughput hundreds ownership during the month of July.

Drill results from CSA released during the period also continued to impress with some notable hits, including over 50 meters at eight 9% copper and <unk> 36 grams per ton silver and just under 21 meters at 14, 4% copper and <unk> 61 grams per ton silver.

We continue to follow the new operators impact on the operation.

And we've been impressed sulfide so far excuse me by their ability to unlock value.

So, let's talk a bit more about sort of way and the Renard mine.

Which most of you would have noticed that on October 27, there wasn't announcement from Stornoway sort of way diamonds that the mine operations were being suspended immediately.

The decision was made in large part due to the recent precipitous fall in rough diamond prices, which have shown no sign of improvement in the recent weeks.

The high profile news of India, helping imports of rough Diamonds is also exacerbated the recent trend of falling prices.

And on the same date Stornoway also announced that it is in the early stages of the <unk> process.

Which will include soliciting investment kind of potential sale.

But a lot of Cisco's October 11th preliminary Geo delivery press release highlighted at the time that we did not expect Bernard to contribute any geos in the fourth quarter base.

Based on subsequent negotiations we will now see some contribution from Bernard during the final three months of the year.

Any amounts will depend heavily on rough diamond prices to be achieved and will be significantly lower than what was originally budgeted.

Yes.

Yes.

At this stage given all the moving parts and potential potential outcomes. It is too early to discuss.

What things will look like at Renard beyond the fourth quarter, but a Cisco will keep the market updated on how best to think about this asset what it produces its 2020 for guidance and.

Our new five year outlook in mid February of next year.

Now did MDT on Monday October 30th Cisco announced that hadn't acquired a 1% MSR royalty on the NAND Dini Gold project in Ghana for U S $35 million plus.

Plus applicable taxes and levies.

The mine is being developed and will be operated by Cardinal and then any limited the majority of which is owned by Shandong gold.

Mine construction is well underway with Shandong recently on record, stating that first gold from the operation is expected in late 2024.

And as shown on the graph on slide.

On the slide that Danny will be a significant gold producer as compared to other global primary gold mines currently under construction.

With an average of 287000 ounces per year over an initial 15 year mine life.

Cisco is excited to add its footprint in Ghana, our country was strong democratic institutions and recognized as one of the most prolific and well established gold mining jurisdictions globally.

The <unk> transaction also highlights that there has been no slowing down into Cisco with respect to our corporate development activities and the company remains focused on adding accretive precious metals acquisitions that can and will move the needle for the company in the near term.

And I am proud of the team for getting this exciting deal across the finish line during my short tenure as interim CEO.

For the purposes of this specific presentation. We've included Renard now rounding out our portfolio of 23 producing assets.

And as has been highlighted in the past I would point to those producing mines that are Fox dive a hatch lines as they are all either as expansion extension or ramp up.

To underpin our near term growth profile and.

And we expect <unk> to add to this specific group of assets by the end of 2024.

And along with our high precious metals exposure and exposure to low cost producing mines Cisco continues to distinguish itself from its peers due to the depth depth of its exploration and development assets, which exceeds 180 properties.

And is heavily weighted to what a Cisco defines as tier one mining jurisdictions, which includes Canada, the United States and Australia.

Recent global events have all serve to underpin our belief that maintaining a high exposure to tier one.

Well established mining jurisdictions is more important now than ever.

So switching gears, a little bit I'd like to quickly touch on the balance sheet at quarter end, we had net debt of $245 million, placing us in a sound financial position and one that we look to strengthen.

As we stated previously the covenant Covenant performance is exceptionally strong on a facility with cash margins at 93%.

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

So in closing the Cisco remains well positioned to continue its growth path.

Further to this positive catalysts continue to unfold across the asset base as indicated in our Optionality Empire assets that will further add to OIS growth towards the end of the decade and beyond.

And a couple of examples include the upcoming final feasibility study.

For him or her most of it.

<unk> <unk> from <unk> 30 to <unk> now expected to be released to the market in the first quarter.

2024.

Ongoing construction milestones at both <unk> and <unk>.

These two projects work their way towards first production in late 2024.

And the results from the Merrimack of copper feasibility study likely also coming in 2024 with the recent appointment of assist our Cinco Chile to lead the engineering assets.

So having now spent several months in the seat working with the team here I wanted to make two closing statement that this will be my last quarterly call.

Having gotten familiar with the assets and when also considering the cisco's current relative valuation versus our peers.

Highlighted on the final slide in this deck in the appendix, it's my opinion more so than ever but a Cisco should remain investors go to royalty company in the mid tier royalty space as.

That's the focus on the company returns to the quality of its underlying assets.

And secondly, I have nothing but praise to say about the team at Cisco. This is a high performing committed group of professionals and they have made my short transition here, a breeze and they'll be ready to have Jason up and running very quickly.

And finally I'd like to provide a friendly reminder, that we will soon be hosting our in person analyst and Investor day in Toronto on November 14th.

Where we will have our corporate development and technical teams presented to try to provide a more in depth presentation on a Cisco is producing development and exploration portfolio of assets.

Furthermore, those in attendance can expect to receive asset updates directly from some of our key operators.

And for those that can't make it in person a recording of the event will be posted on our Cisco's website. Shortly after the session.

So we will now open up the line for questions.

As well as questions posted on the webcast.

And if we don't get to all the questions on the line or the webcast, we will make sure to respond offline to those who don't make it.

Operator, I'll hand, it over to you.

Thank you ladies and gentlemen.

Question. Please press the star followed by the one on your Touchtone phone if you'd like to withdraw your question. Please press the star followed by the two if you're using a speaker phone. Please use the handset before pressing any keys while mommy.

For your first question.

Your first question comes from Ralph <unk>.

Capital. Please go ahead.

Thanks, operator, good morning, everybody.

First of all Paul I, just wanted to thank you for your efforts and stewardship.

Many months and it's encouraging to see such a definitive clarity on leadership and governance going forward.

Thank you Paul.

Where to think about Q4 results and hitting the low wind.

Still implies quarter over quarter.

And the uptick in <unk>.

Our ounces produced and you mentioned Eagle and Eleonore as perhaps having some coupons cadence just wondering are there any other assets in the portfolio, where you're anticipating quarter over quarter strength.

You know in a material way.

While my discussion with the team morale certainly have been told that melodic tends to.

Finished the year strong and obviously that has the biggest variable on us.

Yes.

Maybe on a more insignificant area.

Perhaps there is a thousand geos from renard potentially coming but that is a little unpredictable and we will wait and see where were those diamond sales.

Whether they materialize or not.

Okay helpful. Thanks.

If I can ask a follow up on NIM.

D D.

Was that other 50% of the 2% MSR Mark for sale or should we consider this a sort of a measured and deliberate step investment as it pertains to capital allocation.

Yeah, that's a fair question Ralph.

This is these are these royalties were owned by the community of <unk> would be the expression and only a half of it was available. So that's why we were able to secure the 1%.

Very clear thank you so much.

Again for the depot will Vodafone if you'd like to ask a question. Please press star one.

There are no further questions over the phone at this time.

Excuse me, we do have a follow up question from Adrian day.

Adrian Day asset management. Please go ahead.

Yes, good morning, and again, thank you Paul for your assets I just wanted just a quick question on Reynard.

In the past you've made.

And equity investment and work with it and that works out well, but.

Are you thinking of putting any more money into the mine.

I think Hadrian, that's pretty clear at the moment, we were supportive.

Of the CCA double a process and that is not our intention.

Okay. Thank you.

And there are no further questions over the phone at this time I will turn the call back over to Paul.

Okay. Thanks, everybody I know, it's a busy morning with a number of releases. So we appreciate you participating if there are any follow up questions you know.

Know where to find us and we're happy to two engage with that have a great day everyone.

Ladies and gentlemen, this concludes the conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.

Okay.

Okay.

Okay.

Okay.

Sure.

Well.

Hi, Boyd.

No that's correct.

From a quarterly perspective.

Yes.

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