Triple Flag Precious Metals - Q2 2023

Transcript

Operator (participant)

Gentlemen, thank you for standing by. My name is Cherelle, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Triple Flag Q2 2023 results call, conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Chief Executive Officer, Shaun Usmar. Your line is now open.

Shaun Usmar (Founder, CEO, and Director)

Thank you, Cherelle. Good morning, everyone, thank you for joining us to discuss Triple Flag's second quarter 2023 results. Today, I'm joined by our CFO, Sheldon Vanderkooy, our S.V.P. of Corporate Development, James Dendle, our V.P. Finance, Ebab Bari. Into the next slide. Our business continues its strong performance during the second quarter, with sales of 26,616 gold equivalent ounces, resulting in $41 million of operating cash flow, which are new quarterly records. Our portfolio is performing well, with many assets experiencing positive catalysts during the quarter, such as Steppe Gold's Phase two funding for ATO, Fosterville's prohibition notice, which restricted underground activities having been lifted, Northparkes's mobilization of surface mining equipment for the high gold grade E31 open pit, to name but a few.

In addition, we acquired a 2.5% NSR royalty on the producing Agbaou Mine, operated by Allied Gold for $15.5 million, which brings immediate GEOs to our top line. During July, we released our 2022 sustainability report entitled Progress in Motion, showcasing our contributions and commitment to helping evolve market-leading sustainability performance. I'd encourage you to view this document, which can be found on our website. Subsequent to the quarter end, Triple Flag received a rating of AA in the MSCI ESG rating assessment, placing us amongst the leaders in the gold sector.

Finally, we're pleased to announce that our board of directors approved a dividend increase to $0.21 per share on an annualized basis, which is a 5% increase, and is our second consecutive annual increase of the dividend since our May 2021 initial public offering. I'll now turn it over to Sheldon to discuss our financials for Q2 2023.

Sheldon Vanderkooy (CFO)

Thank you, Sean. We had a record second quarter, realizing over 26,600 gold equivalent ounces. This resulted in record revenues, adjusted EBITDA, and operating cash flow in the quarter. Net earnings of over $16 million resulted in an increase to our earnings per share compared to the second quarter of 2022. Our operating cash flow of nearly $41 million resulted in operating cash flow per share of $0.20, an increase compared to the same period in 2022. The portfolio is performing well, and we are on track with our guidance. I am particularly pleased that we increased our dividend by 5% to $0.21 on an annualized basis. We have robust cash flow, and the portfolio has embedded future growth that does not require further capital investment.

I expect that this will allow us to extend our track record of increases in future years. In the quarter, we paid out over $10 million of dividends to our shareholders. We also returned capital to shareholders through the NCIB in the quarter. We believe that our shares represent significant value. We will be opportunistic in buying back our shares as opportunities present themselves. We repaid $15 million of debt in the quarter, with a balance of $65 million at quarter end. This represents less than two quarters of cash flow. Lastly, our asset margins for the quarter remain strong at 91%. High, high asset margins are a key feature of the streaming and royalty model and help ensure robust cash flow generation. I'll now turn to slide six.

Slide six highlights three very important aspects of our portfolio, namely asset diversification, precious metals focus, and a portfolio which is predominantly centered in the Americas and Australia. Our revenue is well diversified across our portfolio. Northparkes and Cerro Lindo are the biggest contributors in the quarter, representing 17% and 15% of quarterly revenues, respectively. We are strongly precious metals-focused. Gold and silver accounted for 95% of our revenues, among the highest in the sector. Our portfolio is predominantly located in mining-friendly jurisdictions. By geography, the country with the single greatest contribution is Australia. Our Australian producing assets include Northparkes, Fosterville, and Beta Hunt, as well as a number of smaller contributors. Outside of Australia, we are largely focused in Latin America and North America. I'll now turn to James, who will speak to our asset highlights.

James Dendle (SVP, Corporate Development)

Thanks, Sheldon. On page seven, there were a number of important advances made across the portfolio during the second quarter. ATO secured funding package to develop Phase two expansion. As a reminder, Triple Flag participated in the acquisition and financing of the heap leach oxide project, but our stream area entitles us to production from the Phase two expansion without the need for further investment, representing tangible upside from the original investment case. As Agnico Eagle has announced, Fosterville returned to normal operations in June with a noise prohibition lifted. Northparkes has commenced mining the E31 open pits, which host higher gold grades, and we expect to see E31 open pit ore processed later this year and into 2024. Cerro Lindo has renewed access to the high-grade area of the mine that was restricted after heavy rainfall earlier this year. The rainfall event was highly unusual.

Cerro Lindo is located in a very arid part of Peru. Excelsior announced a JV agreement with Rio Tinto's Nuton Venture to evaluate sulfide heap leaching in Johnson Camp. Johnson Camp is within the stream area and represents additional upside to our underwritten investment case. Excelsior remains committed to the in situ leaching project at Gunnison and is pursuing Johnson Camp with Nuton Technologies in parallel. After a prolonged competitive process, Implats has successfully acquired RBPlat. Implats is one of the world's largest integrated PGM producers and brings a strong balance sheet as well as a track record of excellent operational performance and productivity at neighboring mines. RBPlat's assets are contiguous and complementary to Implats operations, securing a significant western limb production base. Turning to slide eight .

As Sean previously mentioned, in late June, we acquired a 2.5% net smelter return royalty on the producing Agbaou Mine, operated by Allied Gold, for a total consideration of $15.5 million, comprised of $13.5 million in cash, plus a non-royalty asset that was re acquired as part of the Maverix's transaction. Agbaou is an open pit mine and CIL processing facility with an attractive land package and exploration upside, run by a capable team of ex-Yamana executives and represents an important asset in Allied Gold's Côte d'Ivoire operating hub. Over to you, Shaun.

Shaun Usmar (Founder, CEO, and Director)

On slide nine, as the snapshot demonstrates, Triple Flag is primed to build on our leading growth track record. With the ample firepower of over $650 million in available liquidity, a broad base of 229 assets, and a 5-year production outlook of over 140,000 gold equivalent ounces, we're excited to continue growing Triple Flag into a leader in the sector with our top sustainability ratings and prudent capital allocation decisions. With the management team being large shareholders ourselves, we are completely aligned in ensuring the best outcomes for our stakeholders. With more than 53,000 GEOs sold in the first half of this year, we're on track to achieve near the midpoint of our guidance range for 2023, which remains unchanged at 100,000-115,000 ounces.

On the final slide, to conclude, our business model continued to prove itself in providing investors with competitive risk-adjusted returns and exposure to precious metals through free cash flow generation, diversification, embedded optionality, consistently high margins, and a low, scalable G&A base. As major shareholders ourselves, our focus remains on disciplined deal execution and value creation, pursuing sensible and accretive deals in a patient manner, rather than pursuing growth at any cost. I'd like to end by thanking our mining partners, our team, and the board for another solid quarter. I'd also like to welcome David Lee to our team, who joins us from Barrick in the role of VP, IR. David's a great addition to Triple Flag, who adds considerable capacity to our team as we continue to develop our public market presence. Thank you for your time. Operator, please open the line up for questions.

Operator (participant)

At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile a Q&A roster. Your first question comes from the line of. Cosmos Chiu with CIBC Your line is now open.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Great. Thank you, Sean, Sheldon, James, and welcome, David. First off, you'll be happy that I will not be asking any complex accounting questions on this call. I'm actually quite happy about that as well. With that, maybe my first question is on Northparkes. You know, James, as you mentioned, and Shaun, you mentioned this as well, they've mobilized mining equipment for the E31, you know, higher-grade deposit. I know you, you said that mining should start sometime later on in 2023, but I just wanna make sure, would that contribute to your accounts? Would there be any contributions to Triple Flag later on in 2023, and has that been factored into guidance?

James Dendle (SVP, Corporate Development)

Okay. Cosmo, I can take this.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Okay.

James Dendle (SVP, Corporate Development)

If Northparkes has started mining E31, there's a pre-strip element, and then there's an oxide element. The oxide will be stockpiled for processing at a future date. The sulfide ore is really what drives production. From what we've seen so far, it looks like sulfide ore will be treated later on this year. There are scenarios where that happens a bit sooner because the sulfide's being encountered further up in the profile than expected, which is good. If it is treated this year, and is encountered earlier, you know, of course, we'll have to see whether it works its way through the concentrator all the way through the sales pipeline, you know, to impact positively our Q3-...

results, which, you know, is incorporated in part of the range that we've put out as our guidance. If it doesn't come into Q3, into Q4, in 2023, of course, we'll see it flow into 2024. You know, the mine's making good progress on, on, on exposing that sulfide. The sulfide as well, it's worth mentioning, will be treated contemporaneously with the underground oil sources at the mine, you know, it is mining, you know, at, at present.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Mm-hmm. Of course. That's, that's great. Then maybe switching gears, Cerro Lindo, you know, as you mentioned, usually not a lot of rain, but quite a bit of rainfall in Q2 that impeded getting to some of those higher grades. As you said, you know, sometime in Q3, there will be renewed access to, to those higher grades. Are we there yet? I'm just trying to get a, a handle on, again, you know, an update in terms of the renewed access.

James Dendle (SVP, Corporate Development)

Yeah, the, the, the access looks to be pretty much there. I think it's worth keeping in mind, of course, that there's a couple of dynamics. One,

Cosmos Chiu (Executive Director of Institutional Equity Research)

Mm-hmm.

James Dendle (SVP, Corporate Development)

You know, as you know, this is a zinc copper mine. The highest silver grades tend to be with the copper and the lead. You know, you would get variability depending on the mine's focus between zinc and copper rich areas. The other element, of course, is that there is a time delay between, you know, production at the mine and production of concentrate, and sales to the stre- you know, under the stream. Whilst, you know, they look to be back in the areas they wanna be in, you know, there will be a delay in, in terms of those ounces flowing through to the stream.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Great.

Shaun Usmar (Founder, CEO, and Director)

Yeah.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Then

Shaun Usmar (Founder, CEO, and Director)

Around four months.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Sorry.

Shaun Usmar (Founder, CEO, and Director)

That's typically three, four months, if you, if you recall that delay, so.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Great. Thank you, Shaun. Then maybe one last question on Nevada Copper. Pumpkin Hollow, you know, sounds very good that development mining sounds to be ahead of schedule. There's a good number of stockpiles as well. Again, could you remind us when that might start contributing?

Shaun Usmar (Founder, CEO, and Director)

Yeah, cause, look, we're cautiously encouraged with the progress that they're making. You know, they are still guiding to, you know, I think at the end of Q3 to start the mill and hit that 3,000 tons a day, and then ramp up towards 5,000 by the end of the year. That's really what they're working towards. You know, as you recall, you know, we're taking a sort of cautious stance until they're up at production capacity on that. That, that's, that's the stance we've adopted, but we're very encouraged with the progress they're making.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Mm-hmm. Of course. Thanks, Shaun. As promised, no accounting questions. Sorry, Sheldon.

Shaun Usmar (Founder, CEO, and Director)

Yeah.

Cosmos Chiu (Executive Director of Institutional Equity Research)

Those are. Thanks again.

Shaun Usmar (Founder, CEO, and Director)

Thanks, Cos.

James Dendle (SVP, Corporate Development)

Thanks, Cos.

Operator (participant)

Your next question comes from the line of Greg Barnes with TD Securities. Your line is now open.

Greg Barnes (Head of Mining Equity Research)

Yeah, thank you, James. Just on ATO, with the phase two expansion, when, when do you expect that to start to deliver GEOs to you? What does the GEO profile look like? I know there are caps at some point that kick in.

James Dendle (SVP, Corporate Development)

Yeah, Greg, good question. look, I mean, the, the, the company is, and I refer to Steppe Gold, is guiding to the sort of high 20s-ish on, on gold production over the next couple years. as they transition towards building the phase two and ramping that up. fairly short shortly after they ramp that up, we'll be into the cap, based on, you know, their production expectations. There will be a period where the oxide is coming down in terms of its production rate, in the absence of further discovery, whilst the phase two element is ramping up. Now, that, that could mean that we're getting more ounces than we do currently, or it could mean we're getting less, depending on that schedule.

Right now, we're, we're not at the stage where we have clarity of around the front-end engineering design and the exact scheduling in that ramp-up profile. It, it's a, it's somewhat challenging to say exactly what that crossover will look like, because as, as you can appreciate, if you've got, you know, three or six-month gap, it can, it can result in quite significant variance, depending on, you know, the, the profile of one of the oxide and the profile of the sulfide. We're, we're not in a, in a position to, to provide a sort of, you know, a firm view on that, but, you know, we'll look to, you know, we'll ensure that that view is reflected in, you know, our guidance going forward, and of course, our five-year out.

Shaun Usmar (Founder, CEO, and Director)

Greg, we, we had a couple of our team members in Mongolia just a few weeks ago, first time since COVID, to look at the progress on site. They've taken a few selfies with lots of cyanide stockpiles, so we're very happy to see that. As you know, I'm pretty encouraged with the transition to phase two and the funding of that announcement.

Greg Barnes (Head of Mining Equity Research)

Okay. The phase two expansion, when is construction expected to be complete and we'll actually be into the phase two mining?

James Dendle (SVP, Corporate Development)

Yeah, look, I think we're, we're really looking at 2025 before that, that gets going. I think it, it's important to keep in mind that a lot of this infrastructure in relation to the plant is, is installed by the virtue of the first phase. Also the, the bulk of the primary crushing, infrastructure and installations has been installed too. They're sort of doing it progressively in some senses, but of course, it won't ramp up until they get through. They need to mine through the oxide before they can access the sulfide in any case.

Greg Barnes (Head of Mining Equity Research)

Gotcha. Okay, that's helpful. Thank you.

James Dendle (SVP, Corporate Development)

You know, just, I should just mention that, you know, Steppe Gold is actively exploring for extension to the oxide. You know, one of the things we noticed when we, when we, first looked at ATO is there is a lot of gold mineralization in the area. You know, there is some opportunity to extend the life of the oxide through, you know, incremental emissions and discovery proximal to the existing operations.

Greg Barnes (Head of Mining Equity Research)

Would any of those satellite deposits impact the GEO caps that you have or the gold and silver caps that you have?

James Dendle (SVP, Corporate Development)

It'd be a nice problem to have. You know, we'll, we'll, you know, we'll, we'll see. I, I think they could do, again, it, I think we'll have to wait to see what those ore sources look like before we can make a determination on whether it hits the cap or not.

Greg Barnes (Head of Mining Equity Research)

Okay. Okay, good enough. Thank you.

Shaun Usmar (Founder, CEO, and Director)

Thanks, Greg.

Operator (participant)

Your final question comes from the line of Lawson Winder of Bank of America. Your line is now open.

Lawson Winder (Equity Research Analyst)

Thank you, operator, and hello, gentlemen. Good morning. Thank you for the update today. I wanted to ask, first of all, on the Agba acquisition, congratulations on closing that. When that asset was sold by Endeavour, I mean, there weren't many years of remaining production expected, so I assume Triple Flag must see some upside on that mine site. What are you looking for in terms of mine life and annual production?

James Dendle (SVP, Corporate Development)

I think, Lawson, Allied Gold's done a wonderful job with the assets they've acquired, including Bonikro and Sadiola, of both exploring, developing, cutting costs, and optimizing their production profiles. I think it's probably quite well known they've done that with Sadiola. We see the same with Agba. The company is actually undertaking the largest exploration program in the history of that operation at present. They've meaningfully extended the life of mine from when Endeavour sold it. You know, we see quite a promising future in that asset. I think it's actually helpful that Agba and Bonikro, you know, form quite a neat operating unit in Côte d'Ivoire, whereas, you know, previously they were two separate assets despite their proximity.

We, you know, we, we see, we, we see quite a few years of life on that asset. You know, I expect to see some public disclosures from Allied Gold that, you know, that, that expects to go public later this month. There'll be, you know, tech reports available on that complex.

Lawson Winder (Equity Research Analyst)

Okay, that's, that's helpful context. Then, thinking about the, the deal pipeline, is Agba and, and that sort of size of transaction, the type of thing that you're seeing? Or what, what is sort of the range of transaction size you're seeing in the pipeline?

Shaun Usmar (Founder, CEO, and Director)

Yeah, Lawson, good, good to chat to you. You know, we're obviously... I mean, Agba is a demonstration. We are seeing stuff in that, in that size or snack bracket, but we're also continuing to see things in the sort of, you know, hundreds of millions of dollars, as, as we've seen throughout this year, which is sort of quite encouraging. You know, the pipeline, you know, continues to sort of remain active in that size range that we've seen through this year, and not just on the kind of late development stage stuff that you, you always see. I think we're, we're continuing to see actionable, sort of tens of millions to hundreds of millions of dollars on sort of late-stage development and some producing stuff as well.

Lawson Winder (Equity Research Analyst)

Great. Thank, thanks for that, Shaun. Guys, maybe if I could also ask one more question just on Prieska. I think we've discussed this before on these calls, but, you know, now that it's closed, congratulations on that. Any updated thoughts on, on your thinking on, on what you see in the feasibility study in order to proceed with that $80 million investment? Are you seeing any early indication as to how you might proceed with that?

Shaun Usmar (Founder, CEO, and Director)

I mean, yeah, just as a reminder, because I, I know it was a while ago, we announced it. You know, seeing that close with that, that gross revenue royalty is important. Seeing the IDC come in as part of that, was, I think, a strong vote of confidence in both that opportunity and the team. It didn't get a lot of attention up here, but certainly in Australia, there were some articles as well on the equity investments that they've had with groups that have got a good track record of sort of modular mine developments, with a view to sort of more rapid ore body access.

So they've come into that story, which, you know, we're, we're quite happy to see, both for the additional liquidity and also the know-how and capability that they bring. So you know, from our point of view, you'll recall we structured this, on the one hand, with the gross revenue royalty, modest check, AUD 10 million. The next phase is sort of an option in our favor for AUD 80 million at a decent repair. I think the thing in particular that I'm encouraged by as I look at that is, I, I've yet to see, how, you know, just humanity's gonna solve this apparent gap between apparent demand for copper supply and available sources out there.

Brownfield situations with sunk capital and know-how, with clearly significant mineralization, I think is an underappreciated opportunity. This is, like, squarely in that, in that category. You know, we're, we're looking to the back end of this year to early next to sort of see where they get to on, on that study, as well as the funding, and to make sure, obviously, it's, it meets our, our requirements before we, we make the commitment. I'm very pleased with how it's playing out so far.

Lawson Winder (Equity Research Analyst)

Fantastic. Have a great rest of your summer, guys. Thank you.

Shaun Usmar (Founder, CEO, and Director)

Thank you. You too.

Operator (participant)

At this time, there are no more questions. I'm going to turn the call back over to our CEO, Shaun Usmar.

Shaun Usmar (Founder, CEO, and Director)

Sure, I'll thank you, and thanks for the questions. Thank you for the time. I'm just gonna end by, remind... Sorry about, operate as a bit of noise in the background. Yeah, just drawing to your attention, you know, we've hopefully starting to demonstrate to the investment audience and beyond, this team's ability to just sensibly execute, deliver actual answers, sector-leading growth in a very sustainable way. I think this quarter is just yet another demonstration of that. High margins, strong cash flow, a robust balance sheet, you know, a progressive dividend that we've just increased as well, and a team that I think is well poised to continue on the journey that we've demonstrated for the last seven and a half years. With that, thank you for your time.

Enjoy the rest of the summer, well, I'll leave it there. Thank you.

Operator (participant)

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.