Triple Flag Precious Metals - Q4 2023

Transcript

Operator (participant)

Ladies and gentlemen, good morning. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Triple Flag fourth quarter and full year 2023 results conference call. Today's conference is being recorded, and 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 that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you, and I will now turn the conference over to Shaun Usmar, Chief Executive Officer. Mr. Usmar, you may begin.

Shaun Usmar (CEO)

Abby, thank you. Good morning, everyone, and thank you for joining us to discuss Triple Flag's fourth quarter and full year 2023 results. Today, I'm joined by our CFO, Sheldon Vanderkooy, and our Senior Vice President of Corporate Development, James Dendle. Into slide four, our business continued its strong performance during the fourth quarter, with sales of roughly 26,000 gold equivalent ounces resulting in $38 million of operating cash flow during the quarter. On a full-year basis, our portfolio generated sales of just over 105,000 gold equivalent ounces, delivering within our guidance range and creating a new record for Triple Flag. This strong performance resulted in $154 million in operating cash flow and $159 million in adjusted EBITDA for 2023, both new records for the company.

In December, Evolution Mining acquired an 80% interest in the Northparkes copper-gold mine in Australia, in which Triple Flag retains a 54% gold stream and 80% silver stream. Evolution has a long history of operating in Australia and is poised to continue developing and operating Northparkes in the exceptional manner that CMOC had previously. Northparkes is a world-class asset, having a multi-decade mine life and great exploration potential, and we expect the high-grade E31 deposit to drive a significant increase in 2024 estimated stream deliveries for the asset. Additionally, several of our over 200 development and exploration stage assets continue to advance, highlighted by exploration success at Hope Bay and updated economic studies at Koné and Eskay Creek.

Finally, looking forward to 2024, we're establishing a guidance range of between 105,000 and 115,000 gold equivalent ounces, while reaffirming our five-year outlook averaging over 140,000 gold equivalent ounces. This builds on Triple Flag's track record of sector-leading growth in gold equivalent ounces over the past seven years, where we've delivered a cumulative annual growth rate of more than 20% since 2017, and continuing with short and medium-term growth while in excess of our intermediate peers for comparable capital deployment, which we have reaffirmed at an annual average of 140,000 GEOs. I'll now turn it over to Sheldon to discuss our financials for Q4 and the full year 2023.

Sheldon Vanderkooy (CFO)

Thank you, Shaun. We had a strong fourth quarter with the portfolio producing over 26,000 gold equivalent ounces, which resulted in us achieving our full year 2023 guidance with a final total of over 105,000 gold equivalent ounces. This resulted in records for both revenues and operating cash flow during 2023, supporting our investment thesis for the Maverix transaction more than a year ago. Operating cash flow per share is a very key metric for me, and I'm pleased to say that we increased slightly for the year from $0.76 per share to $0.77 per share. This reflects a credible growth for the year, with a solid quarter and a solid year. Our dividend has been maintained at $0.21 on an annualized basis, which resulted in Triple Flag paying out over $40 million in dividends to shareholders in 2023.

We have increased our dividend every year since our IPO, and as the year progresses, we'll consider the potential to continue that track record. In addition to our dividend, we also returned over $28 million to shareholders via share buybacks. As of December 31, 2023, we have 9.9 million shares of remaining capacity under the current NCIB. I'd also like to comment on our strong balance sheet. We exited 2023 with just over $40 million in net debt. In Q4, we had operating cash flow of $37 million, so our net debt represents just over one quarter's cash flow. This positions us very well, allowing us to make capital allocation decisions to benefit shareholders through new acquisitions, share buybacks, or dividends. I'll turn now to slide six. Our portfolio has shown consistent growth since our inception.

2023 was a record for operating cash flow, free cash flow, and adjusted EBITDA, each increasing significantly from 2022 due to the acquisition of Maverix Metals as well as other royalties acquired during the year, such as Stawell and Agbaou. Consistent margins result in efficient translation of revenue into cash flow available to shareholders. Our portfolio has significant embedded production growth. As production grows, and further aided by a beneficial gold price environment, we expect our free cash flow to grow due to both a price and a volume impact. Moving to slide seven, we have highlighted here 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.

Cerro Lindo and Northparkes are our biggest contributors during the year, representing 22% and 14% of annual revenue, respectively. Cerro Lindo was our first investment. In 2016, we invested $250 million in a silver stream. I am very pleased that in Q4 we achieved the significant milestone of having recovered all of our initial investment in Cerro Lindo. Demonstrating the strength of the streaming model, Cerro Lindo has a current remaining mine life of over eight years. We're going to benefit from this stream for a great deal of time to come, and my expectation is that over time, mine life will continue to be extended as it has in the past. Moving on, the investment thesis for Triple Flag is for a strong, pure-play royalty and streaming company focused on precious metals. This has not changed since our inception in 2016.

Gold and silver account for roughly 95% of our revenues, among the highest in the sector. Our portfolio is centered in mining-friendly jurisdictions. Jurisdiction matters. Our single greatest country concentration is in Australia. Our Australian producing assets include Northparkes, Fosterville, and Beta Hunt, as well as a number of smaller contributors, including Stawell. I'd like to now turn to slide 8. Slide 8 sets out our production growth since we were founded in 2016. In 2017, we produced 33,000 gold equivalent ounces. By 2023, that had increased to 105,000 ounces, a three-times increase and a compound annual growth rate of over 20%. Looking forward, we expect this growth to continue in 2024, with our 2024 guidance being between 105,000 and 115,000 gold equivalent ounces.

We also expect this growth to continue for the next five years, as we're expecting our gold equivalent ounces to average over 140,000 ounces from 2025-2029. Importantly, this is by organic growth from assets already within our portfolio and does not include any additional acquisitions that may occur. This production growth will efficiently translate into increased cash flow for shareholders. Turning now to slide nine, I'd like to provide some additional guidance on financial metrics. We've already stated our GEO guidance of 105,000-115,000 gold equivalent ounces. This is driven by our expectation of significant growth from Northparkes due to the processing of higher gold-grade open-pit material at E31 and the E31 North, which Shaun will discuss further.

Depletion is expected to be between $70 million-$80 million, higher than the prior year given the growth in gold equivalent ounce production, while our G&A will be between $23 million-$24 million. Finally, our Australian cash tax rate for Australian royalties will be approximately 25%, consistent with the 24% rate that was realized in 2023. Over to you, Shaun.

Shaun Usmar (CEO)

Thanks, Sheldon. I just want to spend a moment talking a bit about Northparkes as a cornerstone asset. As mentioned, Northparkes was acquired by Evolution Mining in December of last year. Northparkes is positioned in Evolution's backyard and in one of Australia's most prospective gold copper belts in New South Wales, which I will highlight in a later slide. Evolution brings significant expertise in large-scale underground caving operations from its Henty Mine, having a skill set and experience that is well-suited for a large-scale porphyry operation such as Northparkes. As you can see on the next slide, mining of E31 open pits at Northparkes is well underway, and we expect these higher gold-grade pits to contribute materially to our gold equivalent ounce profile starting this year.

On slide 12, you can see that Evolution has had great success with developing and optimizing prior acquisitions, like the Cowal Mine, which is proximate to Northparkes. Since acquiring the mine in 2015 from Barrick, Evolution has successfully delivered sustainable production, reserve and resource growth, and major capital projects. Their savvy approach to investing in adding mine life and capacity to create shareholder value in a mine regionally proximate to Northparkes bodes well for our interest in this mine with our new partner, and we're excited to help investors appreciate the world-class quality of our gold and silver stream on this cornerstone asset, as Evolution shows the market what value they can unlock in the years ahead. I'll hand over to James now to discuss Hope Bay.

James Dendle (SVP of Corporate Development)

Thanks, Shaun. Touching on one of our exploration assets that has generated significant news flow over the last year, Hope Bay is a multi-deposit gold project operated by Agnico Eagle, over which Triple Flag holds a 1% NSR royalty. Agnico is undertaking an extensive exploration program at Hope Bay, with 2023 drilling totaling more than 125,000 meters and 2024 exploration budget of $22 million, focusing on high-potential areas at Madrid and Doris. The results from an internal technical evaluation are expected to be reported in 2025, targeting a larger production restart scenario. On page 14, you can see the size of the land package at Hope Bay and the multiple deposits and exploration targets that Agnico Eagle has identified.

Of particular interest is the target area in the vicinity of Patch 7 in the center of the long section, which has delivered strong results, including 16.3 grams a tonne gold over 28.6 meters at a depth of 385 meters and 12.7 grams per tonne gold over 4.6 meters at a depth of 677 meters. As one of the exploration and development stage assets that we were excited about when acquiring Maverix Metals, we're happy to see our thesis play out and look forward to seeing Agnico Eagle continue to develop this project. Back to you, Shaun.

Shaun Usmar (CEO)

Thank you. As the snapshot demonstrates, Triple Flag's outlook is overwhelmingly positive. With our ample firepower of roughly $660 million in available liquidity, a broad base of 235 assets, our eighth consecutive sales record projected for the year ahead, with guidance of 105,000-115,000 gold equivalent ounces and a five-year average annual production outlook of 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 our prudent capital allocation decisions. With the board and management team being large shareholders ourselves, we are completely aligned in ensuring the best outcomes for all stakeholders and are looking forward to what 2024 has to offer. With that, Abby, please open the floor to any questions.

Operator (participant)

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. We'll take our first question from Cosmos Chiu with CIBC. Your line is open.

Cosmos Chiu (Executive Director of Precious Metals and Equity Research)

Thank you, Shaun, Sheldon, and James. Congrats on a very strong 2023. Maybe my first question is on Northparkes. Good to see Evolution taking over Northparkes. And Shaun, you talked about some of the benefits. But I'm just wondering, still early days, but have there been any positive changes at Northparkes that you can share with us?

Shaun Usmar (CEO)

Cosmos, firstly, I think it's a point we had made. Firstly, thank you for the praise. I've got a great team, and I'm very proud of them and what this team has achieved. But to your point on Northparkes, I just want to take a moment because you've travelled this journey with us. I know that we've had perhaps some of the, I'd say, best access and disclosure on Northparkes, and CMOC were great partners. But they really didn't have the same sort of reporting disclosures that I think we'll see under Evolution. So I guess in the short term, it's only months since Evolution has acquired the business. They've only just put out JORC-compliant reserve statements. We expect in the coming months, they're going to be highly motivated to unveil their studies and their vision forward. So it's premature for us to certainly front-run them.

But the business, it has multiple ore bodies. It's well set up. E31, E31 North is timed beautifully for this year and next year to deliver very, very material gold ounce growth for our portfolio. We're actually having dinner with the team on Sunday night, and so we'll get further updates. We're going to keep the market informed. I think just conceptually, one of the great royalties in this sector is Malartic. That's no secret. Do you think of this asset with a longer life for similar NAV for our company as it is to Osisko, but really with a growing ounce profile and actually a longer life? That's before Evolution have engaged. It's not to say one is bad, one's good. These are both great assets.

Our job is really to work on the coattails of Evolution and what they see, hopefully similar to what they've done at Cowal, and to really showcase this asset in the very same way that people come to associate Malartic with Osisko. It truly is that world-class. And I think that's what we would like investors to appreciate. I think with Evolution, their track record and also their disclosure obligations, that will unveil itself in the weeks and months ahead. I'll see if James or Sheldon have any other comments they wish to add.

James Dendle (SVP of Corporate Development)

Yeah, Cosmos, I'd just reinforce Shaun's point. CMOC is a tremendous operator and really ran Northparkes very, very well. And many of the operating team are consistent from Rio Tinto days, CMOC days, and now onto Evolution with a few changes here and there. But really, there's some similarity in the operating team. If you look at Evolution's comments publicly, they're focused on the plan as expected. They point to the size of the mineral inventory. And as a reminder, we're talking about a 500 million tonne resource that's currently being chipped away at 7.6 million tonnes per year. So scope to maybe grow that throughput given the size of the mineral endowment. They've also stated a focus on immediate drilling to target near-mine mineralization at surface and also some of the deeper portions of E48. So we think they're looking at it in exactly the right way.

We've always been convinced that surface exploration at Northparkes is very limited and really was focused on open-pit ore material. We think there's tremendous possibility at depth. I think that reflects quite well with regards to how Evolution is looking at the asset. We'll see how they go with disclosing their plans over the course of the year.

Cosmos Chiu (Executive Director of Precious Metals and Equity Research)

Great. Thanks.

Shaun Usmar (CEO)

Because that gives you a flavor. Watch this space. There should be more to come.

Cosmos Chiu (Executive Director of Precious Metals and Equity Research)

Of course, yeah. And maybe as a follow-up, on the MD&A yesterday, you mentioned short-term at Northparkes, the growth is coming from E31 and E31 North, the open pits. Longer term, it's potentially coming from the E22 underground. Could you maybe help us understand or describe once again the evolution of the asset, the sort of life of mine of the open pits, and what needs to be done in terms of the underground? And just kind of wrap it all together for us quickly if possible.

Shaun Usmar (CEO)

Sure. James, do you want to?

James Dendle (SVP of Corporate Development)

Yeah, sure. This is a good refresher. If you think about Northparkes historically, it was a series of relatively small open pits targeting copper gold mineralization, more or less, at surface. That was in the mid-1990s. Over time, those pits have been developed. Of course, at the time, it was North. Then Rio Tinto discovered the deeper-rooted porphyry system beneath the pits. The mines transitioned progressively from shallow open pits to very sophisticated block caves and narrow mines, a series of block caves predominantly, and a number of supplementary open pits. That's been the history of the mine. There are numerous open pit targets across the property. We'd expect some contribution of open pit to continue into the future. But as you note, Carlos, the real sustained growth is from the development of E22.

When you look at E22, we're talking about a grade that's quite in excess from a gold point of view versus the current run-of-mine grade, so 0.37 grams a ton. So that provides for a longer period of increased gold output. The open pits at E31 are, by design, relatively small and relatively short-lived. So they'll provide production this year and into the next part of 2025. But really, as I say, the sustained gold output is from E22, which is an important development that I know Evolution's also focused on.

Shaun Usmar (CEO)

And just to add to James's comment, I think part of the thesis we had, which he sort of alluded to when we did the transaction, because we made sure that we had full exposure to the over 1,000 square kilometers of land package. And if you recall, the surface manifestation of those reserves are only on 26 square kilometers, that 500 million tons or so, was really the opportunity to find more sort of undiscovered material at depth. And even since we've owned this, which has not been a long time, they've been very successful with limited drilling to date in uncovering that. So very excited to see what Evolution can do. And when you have a quiet moment, because I know you're, I'm sure you've got lots of time in reporting season, but go back and look. I was CFO at Barrick when they acquired Cowal.

As a case study, it's just down the road. It's a very impressive track record of adding substantial value and unlocking value, which I think they're well positioned to do with this mineral endowment here.

Cosmos Chiu (Executive Director of Precious Metals and Equity Research)

Great. Thanks again, Shaun, James, and Sheldon. Those are my questions. Thanks once again.

Shaun Usmar (CEO)

That's great. Thanks, Cosmos.

Operator (participant)

As a reminder, it is star one if you would like to ask a question. We will take our next question from Tanya Jakusconek with Scotiabank. Your line is open.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Morning, everyone. I think that's me, Tanya. It's not Annie, but it could be Annie today. Question for Sheldon first, and then over to you, Shaun, on just the transaction environment. Sheldon, I was a bit surprised about the G&A level this year, and I thought we were going to start to see some of the synergies from the Maverix transaction on some of the G&A. Would you be able to just talk to us a little bit about how you see your G&A going out? I was just a bit surprised. I thought we'd see a bit of synergies.

Sheldon Vanderkooy (CFO)

Yeah, yeah. Hi, Tanya. Thanks. And when you're talking about the G&A, are you talking about the 2023 or the guidance going forward in 2024?

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

The guidance going forward. Yeah, guidance going forward. Because I didn't really expect it to occur, Sheldon, in 2023. I thought we would start seeing it in 2024 and beyond.

Sheldon Vanderkooy (CFO)

Yeah. So first, we actually have completely delivered the $7 million in synergies. And you can kind of get there just by looking at the executive team spend at Maverix, the board costs coming down, audit insurance, office space. So that $7 million has been fully realized. There's a couple of impacts you're going to see as we go forward. So you remember, historically, we were a private company. We went to the public on the TSX. Then we also started to experience the New York listing costs. So there's additional costs in that regard. And that has D&O costs as well as just other compliance costs. And we also became subject to SOX this year. So you'll see our audit report looks a little different. We're actually fully compliant with SOX in 2023. That's an accomplishment for the team, but it also involves additional costs and expenses.

The other thing is some of the non-cash equity compensation from accounting points of view gets treated. It gets smoothed in over a number of years. And so you end up with a catch-up effect there. But I think we're really coming up to really what our run rate is on a G&A front. And even if we grow the portfolio, we wouldn't expect the G&A to have to grow accordingly. We'll get that gearing effect and just be able to leverage the platform.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. So we should be thinking of this level going forward?

Sheldon Vanderkooy (CFO)

Yeah, that's right.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. Thank you for that, Sheldon. I wanted to just talk a little bit about the transaction environment, if I could. Just what are you seeing out there? Size-wise, this morning, we've had Newmont put 8 assets on the block. So just wanted to talk about, could you see yourself participate, obviously, in those asset sales? Some are in Ghana, some are in Australia, some are in the U.S., Canada. Just your thoughts on this environment and your opportunities.

Shaun Usmar (CEO)

Yeah, Tanya, it's kind of interesting if you zoom back. Well, I guess the first answer to your direct question is yes. We have the firepower and indeed the appetite. So if there is a sensible partnership, we'd obviously look to do that. The deal environment, when I step back and I look at some of the issuers reporting just this period, I'm not saying it's necessarily 2014, which was a very interesting period for the sector to deploy meaningful amounts of capital. But it's starting to feel a little like that. I think we're seeing a number of sectors coming under pressure from a liquidity point of view, some very big issuers who have seen substantial declines in pricing. I'm not talking precious, of course, but polymetallics and others.

And it does feel to me, with the equity capital markets being not the most supportive for the sector and valuations coming under pressure, that I think the opportunity set, arguably, is actually growing. It's growing in a way that, absent some magical rebound in the traditional markets, I think is setting up well for the sector as a whole. We've had multiple site visits already this year. We're seeing advanced, in some cases, bilateral opportunities, which we may or may not convert on in the sort of $10 million to sort of $100 million. And so that's, I'd say, what's on the menu directly. But even in the last 24 hours, I've had direct imbounds on situations that I think are being made possible by the environments I just described.

So the only caveat you would have heard me say even a year ago, where we were bilateral on some very large transactions, is that I think with opportunity comes responsibility. And I think it's a great environment for us to be receiving interesting deal flow opportunity. But we also are very cognizant of just the overall liquidity risk in this rate environment. And we're spending a disproportionate amount of time on what happens when things inevitably don't go to script. So that analysis beyond just the simple IRRs and the table stakes that you would normally expect from us, I think we've amped that up. So I don't know if that answers it, but we're seeing a lot right now.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

What would the size range be? And what would be sort of the upper end of what you would be comfortable to do with your balance sheet?

Shaun Usmar (CEO)

I mean, there are some, I'd say, hard to sort of predict probabilities, but some that are in excess of our financing capability, where we'd perhaps be looking at partnerships. But we are seeing several, as I say, in the good return sort of multiple tens of millions to sort of $100 million-$300 million type snack bracket, which for us is pretty easily financeable.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Yeah. So something over $500 million, we couldn't see you do. That would be more than go ahead.

Shaun Usmar (CEO)

I mean, as you'd appreciate, Tanya, the guys on this call have a lot of shares in this company. I think the very idea of incurring dilution, for the heck of it, isn't a great idea. You'd have to have something super interesting of scale. If there was sort of almost a generational opportunity, you'd obviously think long and hard about that. But you think in our eight-year history, the histogram of opportunities, the largest actual, just pure precious streaming opportunity was Northparkes. We could do Northparkes today again with our capability, with the additional cash generation that comes in. So could we see things bigger? I'm sure we could. We just haven't seen one in the last eight years. Not one get bought to book.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. Great. Thank you so much.

Shaun Usmar (CEO)

Yeah, thank you.

Operator (participant)

As a reminder, it is star one if you would like to ask a question. We have no further questions at this time. I will now turn the call back to Mr. Shaun Usmar for closing remarks.

Shaun Usmar (CEO)

Abby, thank you. I think the questions, we've got quality over quantity, which is wonderful. And I think there's, it's probably a reflection of, I think, what should be straightforward and a good set of results. I'll end by just saying thanks again to my team, my board, our partners, and our investors for their trust. I think it's been a great year. I think when you step back and consider the outlook we've just provided and you consider it in the context of the sector, I think it should show quite well. And I'm truly appreciative of the platform that we have. It's simple. We've got the growth that we've delivered, I think, should be plain for everyone to see of eight years now. And we've got a lot of firepower, like $50 million of debt, basically, on the balance sheet at this stage.

At cash run rates of trailing on about $160 million, we're extremely well positioned. I'm excited for what lies ahead. Thank you very much. Wish you well for the rest of the day. That's it. Thanks, Abby.

Operator (participant)

Thank you. Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.