Elemental Royalty Corporation

Good morning, everyone. And how are you today? I'm Joanne Jobin. I am your VID host with VID Media. And today, we are welcoming Elemental Altus Royalties on their very first quarterly Investor Town Hall Forum. Before we commence, this is just a reminder that if you do have any questions for the company, please place them in the Q&A tab located at the top of this screen. After the presentation, I will be delighted to moderate the questions submitted by our audience. With us this morning, I am delighted to introduce CEO Frederick Bell and CFO David Baker, who will take you through the highlights of the most recent quarterly results. Fred, the stage is yours.

Thank you very much, Joanne, and thank you everyone for joining us today. And this is the first quarterly investor call we've done for a while, so very pleased to put it together and we'll do it going forward to try and give shareholders and potential investors a better guide to the company and really an explanation of some of the results as we go forward. At any point, if there are questions, we'll hopefully just keep them in mind, and then we can come back to them at the end of the presentation and try and address anything that's there. So in terms of the slides here, if we move on to the first slide here and note we're gonna be making forward-looking statements, and there's a disclaimer there, and the two presenters from the company today are myself, Frederick Bell, and David Baker, who is our CFO. and we'll really run through the results today with you. So starting on, if we turn to the next slide, thank you. The second quarter, look, the real highlight here is we had strong royalty revenue of 2.5 million, revenue of 5.2 million US, which is about a 10% increase on Q2 2023. It's the, I believe, the second highest adjusted revenue number quarterly in the company's history. And as we continue to grow from 2023, 2024, going into 2025, we expect to continue to get really solid quarters growing along that period. In terms of adjusted, EBITDA stands at 3.4 million US dollars, which is about up 4% from Q2 2023, respective period, and margins improving towards pre-merger levels. In terms of gold equivalent ounces, that's geos, we have 2,211 ounces, and for the half year to the end of June, that is 4,415 ounces. We expect to meet the lower end of our guidance on a geo basis of 10,000 to 11,700 gold equivalent ounces, and that's driven in the second half of the year by first royalty revenue we're anticipating from Diba in Q3. and partially offset by lower copper prices compared to gold prices at Casarenos. And I think worth mentioning for that, that that is for a gold equivalent ounce term. In terms of revenue, we get the same, it is just lower on the gold equivalent ounce basis when we're looking at copper from Casarenos. In terms of the balance sheet, we've continued to strengthen the balance sheet over the course of the year. This is something we said we would do last year, and we repaid five million in Q1, and we repaid another five million in Q2, taking a total repayment 2024 year-to-date to 10 million US dollars. And at the quarter end, we held approximately 6.5 million in cash, and we retained approximately 20 million of undrawn debt that's available for transactions, which along with free cash flow generation and expected milestone payments, giving us a lot of capacity for future acquisitions. And those milestone payments across 2024 and 2025 We've said we need approximately $19 million to come in over that period. The two assets that are really going to be driving growth for us in 2024 and continuing into 2025 are Bonacro and Diba. Bonacro has already started to demonstrate that. We had $1.8 million in revenue in the first half of this year. which is a material increase on the approximately 300,000 we have in the equivalent period in 2023. And DIVA, Allied Gold, the operator there, have announced that they may commence mining, and we're expecting royalty revenue to start coming in from Q3. In terms of the deal pipeline, look, it remains very, very robust. We've got a lot of opportunities we're looking at both on an individual acquisition basis, but also in terms of portfolios and consolidation discussions across the junior royalty space. So in sum, it's been a good quarter in terms of revenue. We've strengthened the balance sheet over the course of this year to date, and we expect to continue to do that where the opportunity is there. Bonacro has really started to deliver growth as of 2023, and Diba coming on in the second half of this year, and we're continuing to look at acquisitions as we go. So if we then turn to slide five, Two key royalties for us are Carlawinda in Australia and Casarones in Chile. Carlawinda operated by Capricorn Metals and it was a record quarter in terms of revenue at Carlawinda, partly driven by really the gold price there. Capricorn, the operator, are guiding to 110,000 to 120,000 ounces in the next 12 months. And really importantly for us is Capricorn also announced the commencement this month of a study on a major expansion of 2 to 2.5 million tonnes per annum at the mine, and that's an approximate 50% increase in throughput. So they're looking to have that study completed by the end of this calendar year, and we should have further news on that, but that's one of our largest royalties they're looking And I think important to note as well that the management team at Capricorn, this is a management team that in their previous company built three mines in Australia in a five-year period and had throughput increases, expansions at all of those mines over that same period of 30 to 50% at each. So it's a management team that in Australia are exceptionally well-known and have a really strong track record, not just building mines on time or budget, but actually then taking expansion studies through successfully and implementing them. So really pleased to see that news come out and look forward to further updates from Capricorn there. At the same time as a throughput expansion they also announced a 15% increase to the reserves to just over 1.4 million ounces of gold and that supports current mine life of approximately 13 years. The second real cornerstone asset in the portfolio is Caterines with Lundin Mining in Chile, and this accrued adjusted royalty revenue of $1.4 million US dollars based on reported production on copper and molybdenum by Lundin. And at the same time, I think Lundin actually increased their guidance here for the 2024 year to 124,000 to 135,000 tons of copper, and you can see it was pretty So, it has continued the pattern since Lundeen acquired majority ownership in this mine. I think we've seen, from a royalty holder's perspective, we've seen really good, consistent production, and we've actually seen really positive trends, both in terms of the direction they're taking the mine, in terms of the outlook on cost improvements, and also exploration drilling. which is the next bullet point here, and which they have started for the first time since the mine was constructed approximately 10 years ago. So one of the things with a mine with a long mine life is you don't always prioritize exploration when you build it. And I think it's great to see that with Lundeen coming in as operators, they've started exploration there and a very good outlook in terms of some of the targets they're looking at, which I should emphasize are all, as a rule to go, they're done at no cost to us. So if we turn on to the next slide, there's a number of opportunities to see growth in the portfolio, most notably, and we mentioned Diva first here, and this had first production in June, and we're expecting maiden gold sales in Q3 2024. subject to receipt of authorization for processing at Saviola, which is the mine they currently operate immediately adjacent to the Diba deposit. So we're seeing a lot of work that Allied have completed since that transaction was announced at the end of last year, and they've built a whole road to site. They declared maiden reserves, and then they announced that in Q2 they started first mining there. So very encouraging to see how fast Allied have been progressing it. And they also announced an $8 million exploration program really focused on . Again, very encouraging for us to see resource growth that's already happened, the mine being put into production, and the future exploration potential that we're going to see from the drilling they're doing now. The second asset here, Bonner Crow, it's also operated by Allied Gold and, as mentioned, provided significant royalty revenue. You can see on that chart there from Q3 last year that it's materially increased and been averaging approximately $1 million a quarter for the last three quarters. And Allied have also guided that they're expecting to access higher grade ore in 2025 and 2026, which should drive production from the royalty area. And the last royalty we're talking about here is an asset that is not in production, but a really material PEA announced by Arizona and Sonoran on the Cactus Copper project. And that's moving it to a larger open-pit operation from the previously envisaged underground project. The full technical report should be put out soon by the operator, Arizona and Sonoran, The first indications for us are that we expect royalty to cover significantly higher tons, which ultimately will drive in the future more revenue for us as a royalty holder. And we should also impact – sorry, we should also note that this is prior to the Newton studies that are expected to come out later in the year that Arizona and Sonoran are doing in conjunction with Rio Tinto. Moving on to slide seven here. Recently, other than other updates from the portfolio, we've recently completed the acquisition of two royalties. Really, the driver for this was the royalty on the Mactan tungsten project, which is recognized as one of the largest, highest-grade tungsten deposits in the world. It's help-rated by Fireweed Metals. company that we know and follow for a number of years and I think very pleased to have that asset into the portfolio and following that we also had a few updates with existing royalties in the portfolio and you can see there that We mentioned the royalty we have in Rwanda, which is currently being explored under a JV by Rio Tinto. I think they have just announced yesterday that they're expecting to start drilling on the project later this year, which will be maiden drilling and exploration there. In Egypt, we continue to hold a royalty and equity interest through IntuMetals on one of the largest land packages in Egypt. There was a major dual program completed on the project with encouraging results and we're looking forward to the second dual program which is planned for Q3 this year. We're well positioned to benefit through any discovery success there with uncapped royalty interest, continuing equity exposure and milestone payments on success. And then lastly, we received an additional payment from the mainstream that we have. And so that takes the total consideration we're expecting from the asset to about 12.4 million US compared to the just over 11 million carrying value at the date of disposal. So there's been a few updates in the portfolio. And I think we're anticipating a few new additions to the portfolio moving forward as well. In terms of the portfolio makeup, I will just very quickly run through this and then I think I'll hand over to Dave to go through the rest. But look, what we have put in place is I think a really well diversified portfolio in terms of our assets. It's also our commodity mix. We're remaining precious metals focused, but with a significant exposure to copper. And in terms of jurisdictions, we're really anchored by Australia and Chile as our two biggest jurisdictions. So I think it's a portfolio that has a very good blend in terms of diversified revenue, also a clear focus on gold and copper as the two primary commodities. So with that, I will hand over to Dave to take you through the next couple of slides.

Perfect. Thanks, Fred. Just in terms of the financial overview, GEOs for the quarter came in at 2,211. ounces translating to $5.2 million of adjusted revenue. That's up 10% year-on-year. Revenue to H1 was $9.9 million, and that's up 16% year-on-year. I think we're a little bit unlucky just in terms of the timing of production versus sales at some of our key royalties, but we'd expect that to pick up in Q3. This translated into a modest increase in EBITDA for the quarter, but clearly a material increase in EBITDA compared with H1 2023. The reason for that modest increase in Q2 is we've tidied up some of the non-cash accruals in the period, and then we're going to release those over the remainder of 2022 and 2025. And then also we've had some changes within the management team and some one-off costs associated with the disposal of the exploration business. So we'd expect to get those margins to improve over time. And we'll talk to that later. Operating cash flow, likewise, affected by one-off costs around departure costs of senior management and also the timing of audit, accounting and tax invoices that we go through. I'd expect that to normalise significantly through H2O. I would note that as a result of the growth in the business and optimizations post-merger and disposal of the exploration business, that net loss for the quarter is over 90% lower than this time last year, and I look forward to that improving in the future. I think an underestimated asset to the company is the expected $19.2 million of milestone payments that we are expecting to come through 2024 and early 2025, and that will significantly bolster our financial position. In H1 2024, we've already received $0.3 million in cash and $2.3 million in Firefly equity that we have realized. We've also received significant cash as part of the sale of Canyon Resources shares and our first discovery bonus this year from SKO. Looking forward to H2, we would expect to receive a million dollars on reaching first commercial production at Diba, that Ally has recently announced that first production has taken place, so we expect that to occur in H2 2024, and we're expecting a deferred $400,000 from the sale of the Egyptian licenses. But in H1 2025, we see material further payments, including nearly $10 million in cash and fly-fying equity, the final payment of the Ming stream, There is a small residual amount there that we could possibly be entitled to, so that number could get a little bit larger. We also see $10 million of production from contingent payments from DEBA upon reaching 100,000 ounces of production, and nearly $10 million for the buy-down, that partial buy-down of the Cactus Royalty. All in all, $19.2 million of one-off payments to the middle of next year. In terms of trends for the business, GEOs are relatively flat, but that's built into the relative performance of copper versus gold. So that means similar or even higher copper-based revenue from Casarona results in fewer GEOs as the gold price rises. Obviously, that benefits the other 70% of our royalties. We are, in terms of guidance, as Fred said earlier, with $9.9 million for the half year. We're expecting revenue towards the top end of our adjusted revenue guidance of $20 to $22. $23.3 million, and that's driven by first royalty revenue from DIVA and continued strong gold prices. In terms of margins, as I said, they're definitely on the right track following the merger and the monetisation of the exploration business over the last 12 months, and I think we'd look to get that back towards pre-merger levels of between 70% and 80%. I think as well, I just would like to draw attention to our attractive valuation versus peers for pure play gold and royalty copper and golden copper investment. And also draw attention. Since 2021, we've put a few of the names that have been acquired by mid-tier royalty names on the right-hand side. And I think the next time we'll have to put this slide together, we'll put Trident from the left-hand box into the right-hand box as they've just been acquired by Daterra. I guess whilst that reduced competition helps us for deal flows, it also shows that larger royalty companies are willing to pay real premiums for high-quality royalty companies. And with that, I'm going to pass it back to Fred for Q&A.