Triple Flag Precious Metals - Q3 2024

Transcript

Operator (participant)

Hello, greetings, and welcome to the Triple Flag Precious Metals Q3 2024 Results Conference Call. All participants are in the listen-only mode. Later, we will conduct a question-and-answer session. To ask a question, please press star followed by the number one on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Sheldon Vanderkooy, CEO. Please go ahead.

Sheldon Vanderkooy (CEO)

Thank you, Jeremy. Good morning, everyone, and thank you for joining us to discuss Triple Flag's 2024 Third-Quarter Results. Today, I am joined by our Chief Financial Officer, Eban Bari, and our Chief Operating Officer, James Dendle. Triple Flag delivered another strong performance in Q3 with record sales of nearly 30,000 gold-equivalent ounces. This has resulted in another record quarter for Triple Flag and places us firmly on track to achieve our 2024 production guidance of 105,000-115,000 ounces. We now expect to achieve the top half of our guidance range. The high-grade open-pit material from Northparkes continues to be a key part of the 2024 story, as Northparkes continues to be a strong contributor. I'd like to highlight our growing cash flow per share. Operating cash flow per share increased over 70% as compared to the prior period.

This is due to record production, record gold prices, and stable margins insulated from inflationary cost pressures. The streaming model is working as it should for the benefit of our shareholders. Our portfolio has also achieved several milestones over the past three months. These include the following: first, Cerro Lindo delivered robust 2024 production year over year. Second, Orla Mining increased its production guidance for Camino Rojo for the second time this year. Third, Montage Gold fully permitted and financed the Koné project to production. And finally, Westgold announced exceptional exploration results from drilling at the Fletcher Zone of Beta Hunt, demonstrating meaningful expansion potential for that mine. Triple Flag acquired its royalties on Camino Rojo, Koné, and Beta Hunt through the Maverix transaction in 2023, which continues to pay dividends for Triple Flag shareholders.

Towards the end of the third quarter, Triple Flag was added to the S&P/TSX Composite Index, which brings exposure to a broader investor base as well as greater liquidity in trading. Looking ahead, Triple Flag's growth profile remains strong and well-positioned to deliver long-term value for our shareholders. Our production is expected to be between 135,000-145,000 gold-equivalent ounces in 2028. With that, I'll turn it over to Eban to discuss our financial results for the third quarter of 2024.

Eban Bari (CFO)

Thank you, Sheldon. As noted, we have the strongest quarter yet, with the portfolio producing nearly 30,000 GEOs, a new record for the company. This puts Triple Flag right on track to achieve our 2024 sales guidance, as Sheldon just confirmed. As a high-margin royalty and streaming business, these record volumes have translated to record levels of adjusted EBITDA and operating cash flow per share. Lastly, I'd like to comment on the balance sheet. We exited the quarter with a small net debt position of only $11 million, following third-quarter drawdowns on the credit facility of over $60 million for the acquisition of the new streams with Allied Gold and an additional royalty on the Tamarack Project. This clearly demonstrates the robust cash flows generated by the Triple Flag business.

Our cash flow outlook, combined with nearly $690 million of current available liquidity, gives us the financial capacity to deploy future capital for future per-share growth, as well as deliver high shareholder returns. Moving ahead, we continue to highlight three key aspects of our investment thesis, namely asset diversification, precious metals focus, and a portfolio which derives roughly 80% of its revenues from Australia and the Americas. Cerro Lindo and Northparkes continue to be the two largest contributors to Q3 GEOs, with both assets receiving a benefit from higher year-over-year volumes and, of course, higher gold and silver prices. Our asset diversification and geographical focus is well understood. So, given the strong precious metals environment, I highlight Triple Flag's continuing 100% portfolio exposure on top-line revenue to precious metals in Q3 2024, with a meaningful portion weighted to silver at approximately 30%.

I feel fortunate to have this level of exposure, given the many favorable tailwinds for both gold and silver in the near to medium term as a pure-play royalty and streaming company. As highlighted earlier, the realization of strong precious metal prices and an asset portfolio that continues to deliver has resulted in record performance across revenue, cash flow, adjusted EBITDA, and GEOs over the last 12 months. We expect this performance to continue as we deliver on our 2028 growth outlook and are committed to remain disciplined on capital allocation as we diligence new deals for creative per-share growth and deliver sustainable returns for our shareholders. Over to you, James.

James Dendle (COO)

Thank you, Eban. The open-ended optionality embedded in the royalty and streaming assets is crucial to the value proposition of our business, and well exemplified by the exploration success announced by Westgold for Beta Hunt, where we hold both a 3.5% GR royalty and a 1.5% net smelter return royalty. Beta Hunt is an underground mine in Australia with four ore bodies across a seven-kilometer footprint, hosting approximately 1.6 million ounces of measured and indicated resources and 1.1 million ounces of inferred. The main ore source is the Western Flanks Deposits. The mine is currently undergoing an expansion to consistently deliver 2 million tons per annum of ore, which is expected to be completed in the first half of 2025 and support production growth at Beta Hunt over the medium term. Beta Hunt's new operator, Westgold, has recently announced a significant new discovery known as the Fletcher Zone.

The Fletcher Zone is located 300 meters to the west of Western Flanks and is interpreted as a parallel structure to this primary ore source. Successful drilling has resulted in Westgold declaring an inaugural exploration target under the dual code for the Fletcher Zone, ranging from 23 to 27 million tons at a grade of 2.1 to 2.5 grams per ton gold and containing 1.6 to 2.1 million ounces of gold. Clearly, this is a substantial discovery, which could nearly double the current resource base of Beta Hunt at a very similar grade. Exploration drilling is ongoing, and Westgold is also advancing decline development from the Western Flanks to the Fletcher Zone to support a potential new mining front.

We look forward to the continued development of the Fletcher Zone, which is a prime example of the strength of the streaming and royalty business model to deliver substantial additional gold at no additional cost to our shareholders. Over to you, Sheldon.

Sheldon Vanderkooy (CEO)

Thank you, James. With record production, record revenue, and most importantly, record operating cash flow per share, we are very pleased to present these third-quarter results to our shareholders. We will continue Triple Flag's track record of accretive growth. We have available capital of nearly $690 million, a broad base of 235 assets, a strong organic growth profile, and our corporate development team remains busy and focused on adding additional assets to the portfolio. I want to stress our alignment with shareholders. The board and the management team are large shareholders, and we are completely focused on shareholder value. We are looking forward to what 2025 brings for Triple Flag and all its shareholders. Jeremy, please open the line for questions.

Operator (participant)

Just as a reminder, if you would like to ask a question today, please press star followed by the number one. We do have our first question, sorry. I apologize, I was not able to pick up your name in the recording, but your line is now open.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Hello, is that me?

Operator (participant)

Yes.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Oh, okay. Well, it's Tanya Jakusconek from Scotiabank. Good morning, guys, and thank you so much for taking my question. Just wanted to come back and circle back in the deal pipeline. I know I ask this every quarter, but we have a gold price that is quite volatile and moving in both directions, and just wanted to look and ask what the opportunities look like for you right now. We had last talked last quarter about $100-$300 million range, and we had talked about mostly focused on the funding for new projects, but maybe someone can give me some color on what you're seeing today and if anything's changed. Thank you.

Sheldon Vanderkooy (CEO)

Yeah, thanks, Tanya. This is Sheldon speaking. I'll respond to that. It remains a strong pipeline in that $100 million-$300 million, I think, remains in play. There's also some smaller transactions, I think, that we're looking at. We announced the Allied Gold transaction on the last quarter, and that was just a little bit over $50 million. So I could see there being a transaction that's in that range as well. The pipeline's deep. In terms of development, it remains that there's a pretty good proportion of the pipeline remains in the development side. There's also operating cash flow possibilities out there as well, primarily in the gold and silver space. I don't know if that helps or not.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

It does, Sheldon, and thanks for that. And maybe are these simple royalties and/or streams, or do we still have the complexity of having to look at maybe also providing debt or equity exposure as well? Are those still how we should be thinking about some of these transactions?

Sheldon Vanderkooy (CEO)

Yeah, you should be thinking about traditional royalties and streams. Tanya, we really don't want to go down the debt and equity route. It's just not our business model, and I don't think it's what our shareholders are looking to us to provide our counterparties.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Then maybe from a geopolitical standpoint, your recent ones have been in Africa, so I'm just kind of wondering if you have a focus to come back to more stable jurisdictions, or how are you thinking about your portfolio there in terms of geopolitical risk on future transactions?

Sheldon Vanderkooy (CEO)

Yeah, for sure. We don't actually start with the, "Oh, we're targeting a certain jurisdiction." It's more like you're looking for good assets, a good way to deploy capital. And then part of that determination involves, of course, a determination on the risk of the jurisdiction that you're investing in. We're quite happy with that Allied transaction and quite comfortable with the jurisdiction. That said, it's not like we're targeting Africa per se for our new deployment possibilities. I'm thinking through the pipeline. It's pretty varied where it is. Probably the biggest focus there is Latin America. And again, it's always an assessment of what the risks are as a whole. What I'll come back to, though, is when I look at the portfolio as a whole, we really are centered in Australia. Australia is our single biggest concentration and primarily mining-friendly jurisdictions in the Americas as well.

I don't see that changing.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. So would you say a lot of your, and maybe I misunderstood this, but you're seeing a lot of opportunities in Latin America at this point, or did I misunderstand that?

Sheldon Vanderkooy (CEO)

If I had to say a single jurisdiction that most of our pipeline is in, it's in Latin America, but there are opportunities that are outside of Latin America as well.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. All right. I don't want to take up all the time, but thank you so much for helping me on this, understanding this. Thank you.

Sheldon Vanderkooy (CEO)

Thanks, Tanya.

Operator (participant)

As a reminder, if you would like to ask a question, please press star followed by the number one. All right. Our next question comes from Derek Ma from TD Cowen. Please go ahead.

Derick Ma (Equity Research Associate)

Thank you for hearing my question. In terms of the evolution of deal mechanics and emerging themes, are there certain things that counterparties are looking for when you're looking in the deal market right now in terms of potential stream opportunities?

Sheldon Vanderkooy (CEO)

Yeah. Hi, Derek. I don't think there's anything that's really a sea change of difference from before. I mean, we're always trying to keep our exposure to the whole project, to extend the life of mine. Counterparties are, of course, cognizant of doing a deal that works for them and their shareholders as well. But I wouldn't say that there's any real sea change of difference from when we started in 2016 through today. In some ways, the streaming and royalty model has just gotten more accepted over the years. I think everyone that goes and looks to finance a project probably, well, certainly they're considering a stream, and I think I'm actually quite pleased with how many times the stream is part of that financing package.

Derick Ma (Equity Research Associate)

Okay. That makes sense. And in terms of alternative financing, we've seen a number of gold prepay arrangements being completed in the last 12 months or so. How do gold prepays compete with streams, and does that potentially erode the opportunity set for streaming companies?

Sheldon Vanderkooy (CEO)

I don't think so. I think it's actually part of the total capital picture that companies are looking at. And if someone has a prepay and it sits alongside a stream that would be provided by ourselves, that could actually be for our benefit as well. In terms of there's some really fundamental differences between a prepay and a stream, right? But part of that is we actually finance over the entire life of mine, and I think that can be really attractive to counterparties. We also share the production risk, which a prepay just doesn't do. And I think there's some real advantages to the stream financing for operators. But again, I think that a lot of them are looking to put together a total mix. And kind of as alluded to on the prior question, there can be equity provided by other sources.

There can be debt provided from other sources. And if there's some prepay provided from other sources, I think that could also work.

Derick Ma (Equity Research Associate)

You said debt and equity are not really what you guys look at as part of the core part of the business. Are prepays something that you would look at more going forward?

Sheldon Vanderkooy (CEO)

We've gone there in the past. I mean, it's not that we've ruled it out. But again, what I really want to offer our shareholders is life-of-mine exposure. A prepay isn't life-of-mine exposure. So that's never going to be the focus of our business or, quite frankly, the focus of anyone financing.

Derick Ma (Equity Research Associate)

Great. Thank you.

Sheldon Vanderkooy (CEO)

Thank you.

Operator (participant)

All right. I'll give it just a few more seconds to see if anybody else queues up. It does look like that is all the questions we have today. So I'll turn it back over to Sheldon Vanderkooy, the team, for closing remarks.

Sheldon Vanderkooy (CEO)

Yeah. Thank you, Jeremy, and thanks, everyone. I don't have any more closing remarks, but it's been a great quarter. Looking forward to what the end of the year brings and then 2025. I hope everyone has a great day. Thank you.

Operator (participant)

Thank you. That does conclude today's presentation. Have a pleasant day.