Triple Flag Precious Metals Corp. Common Shares

Good day, and thank you for standing by. Welcome to the Triple Flag Precious Metals 2021 year-end results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference call is being recorded. If you require any further assistance, please press star zero. I will now like to hand the conference over to your speaker today, Sean Usmar, CEO. Please, go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss Triple Flag's fourth quarter and year-end results. I'm pleased to be able to share the results of our first year as a public company. 2021 was our fifth consecutive sales record since our founding. recording 83,600 gold equivalent ounces. That's a 33% increase on our prior record in 2020, which equates to a sector-leading cumulative annual growth rate of 26% since our first metal sales in 2017. Our 2021 sales translate into free cash flow of $120 million. It's a 42% increase on our prior record in 2020. We commence 2022 with no deaths over $600 million in financial capacity for new deals, an active deal pipeline, a long-life high-margin portfolio, a dividend providing a sector-leading yield, and greater strategic possibilities as a public company. You've seen what we've achieved in our first five years as a startup, and I'm truly excited about what lies ahead over the next five years with the platform we've built and the possibilities it creates for our partners and investors alike. Turning to slide five, the portfolio performed well overall during 2021 against the backdrop of ongoing COVID-19 challenges and supply chain disruptions. The increase in gold equivalent ounces over 2020 was driven by the continued ramp-up of newly constructed mines, a full year of contribution from North Parks, and a significant year-over-year increase in Cerro Lindo deliveries, which largely offset COVID-19-related production deferrals experienced by ATO due to associated supply chain disruptions. Cerro Lindo continues to be a significant and reliable producer for Triple Flag and continues to demonstrate their track record of reserve replacements and periodic mine life extension through ongoing exploration success and mine planning evolution the latest three are guidance for cerilindo provided by nexa last week is net positive for triple flag due to higher silver grade projections despite lower base metal grades there are three key metals at cerilindo namely zinc copper and lead silver is principally correlated with copper and lead So there are times when reductions in zinc production are beneficial to the silver production as the mine molds a greater proportion of copper and lead. Plusterville significantly outperformed in Q4 of 2021 and for the entire year. The mine produced 509,601 ounces compared to the original guidance of 400 to 425,000 ounces, with mill grades of 23.7 grams per tonne for the year and throughput up around 14% from 2020. During 2021, we also saw very high grades reported from the drilling down plunge of the Swan Zone and, of course, the announced merger with Agnico Eagle. The announcement of ATO's Phase 2 expansion in Q4 was also a positive highlight during the year. The Phase 2 expansion provides significant mine life extension, and STEP was already advancing with construction activities on a new crusher. We declared a quarterly dividend of 4.75 US cents per share, and our annualized dividend yield is sector-leading, allowing us to directly share the benefits of Triple Flag's ample, growing cash flow with our shareholders. We intend to continue growing this dividend over time without compromising our disciplined growth strategy. We are extremely proud of our sustainability initiatives. We are carbon neutral since inception and continue to invest in climate performance, host, and local communities with a total of nearly $1 million contributed to sustainability initiatives in 2021. Looking ahead to 2022, we have many high-quality catalysts in the portfolio driving organic growth, North Park's E26 Lift 1 North block cave is expected to reach production in Q1. That's some five months ahead of schedule. After a record year of silver production in 2021 at Cerro Lindo, NEXA is guiding for a further production increase in 2022. The Ritika is expanding throughput to 4,000 tons per day, and Abiplat is nearing nameplate at the Scaldriff mine after achieving record 4E production results in Q3 last year. We completed two deals in 2021, adding 37 assets to the portfolio.

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Officer Darren Harris and Chief Financial Officer Tim Mullaney. Following their prepared remarks, we are happy to...

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Hey, everybody. Apologies for the technical issues. We're going to pick up where I think the pre-recorded message left off. So look, we completed two deals in 2021, adding 37 answers to the portfolio. and the majority of these assets were gold royalties in the Americas as well as a copper royalty in Chile. On the deal-making front, for a team that has averaged just over three deals a year since inception, deploying over several hundred million dollars in new streams and royalties on average annually, this was a relatively quiet year in terms of executed deals. Our focus is on disciplined deal execution and value creation, exercising patience while pursuing sensible and accretive deals, The feedback from our shareholders has been unanimously supportive of this discerning approach. Look, we remain opportunistic, laser-focused on growing value per share, and have a perpetually busy pipeline with ample financing capability for any potential transaction. Turning to slide six, we're a pure-play, gold-focused streaming and royalty company without significant equity exposure like some of our peers. Our investors enjoy exposure to a high-quality portfolio of 79 streams and royalties, the sector leading growth from 15 operating mines, and key metrics that compare favorably with the best in the sector from a margin, diversification, portfolio duration, asset cost position, and geographic location perspective. Turning to slide seven. Triple Flag's current valuation continues to provide significant upside for a re-rating to multiples that would be more in line with our senior peers, particularly in the context of the quality and longevity of our portfolio that aligns favorably with the best in the sector. We've already demonstrated repeatedly over the past five years that we have the scale and capability to compete in an intelligent manner with the best in the sector for the largest and highest quality precious metals opportunities. We believe that a re-rating will be driven by the broader recognition of investors of our portfolio quality and management team capabilities, along with the continued performance of our business, consistent execution of our strategy, and prudent return of capital to our investors. Our commitment to our investors is to continue to remain disciplined in the execution of our business strategy. I'll now ask Sheldon to comment on our Q4 and 2021 results and to provide some further context.

Thanks, Sean. We had another strong quarter, recording over 20,600 GEOs consistent with Q3. Comparing to the same quarter in the previous year, this represented a decrease of 1,800 GEOs. This is due to three factors. First, Q4 2020 included the Beretica Gold Stream, which was repurchased at the end of the year. Second, ATO's COVID-related production delays resulted in a year-over-year decline in the fourth quarter. And finally, timing of sales from inventory at North Parks resulted in a lower contribution in Q4 2021 as compared to Q4 2020. On the positive side, we saw a higher contribution from Cerro Lindo and Renard in Q4 2021 as compared to Q4 2020. Looking at 2020 as a whole, we realized a record of 83,600 GDOs, a new annual record and a 33% increase over the prior year. This production resulted in revenues of over $150 million for the year, also a 33% increase as the average gold prices were broadly consistent with 2020. We present adjusted earnings to adjust for the impact of items such as one-time dispositions and non-cash mark-to-market adjustments. Our adjusted net earnings in 2021 was over $57 million, a 135% increase over 2020. On a per share basis, we recorded adjusted net earnings of 39 cents per share, nearly double the 21 cents per share recorded in 2020, despite the additional shares issued on the IPO. Turning to cash flow, in 2021, we achieved record cash flows of $120 million, a 43% increase over 2020. This underscores the robustness of the streaming and royalty model, as our high margins allow for very effective translation of higher production and revenue to bottom-line cash flow. For the quarter, we realized cash flow of $29 million, consistent with the prior quarter and slightly less than cash flows realized in Q4 2020 due to the production and timing impacts previously discussed. I'd also like to touch on the balance sheet. Our balance sheet is strong. We closed the year with over $40 million in cash on hand. We are debt-free and we have access to $600 million on the revolving credit facility to fund further accretive growth. I'll now turn to slide nine. Slide nine presents our track record of growth in graphical form. The business just continues to grow and develop. The growth in cash flow is quite remarkable, growing from $28 million in 2018 to $120 million in 2021. A strength of the streaming model is that operating cash flow gets translated very effectively into free cash flow. As a streaming company, we are not exposed to the sustaining capital expenditures that mining companies are exposed to. This leaves more cash available to shareholders. The margins are robust and inherent in the model. After a long period of subdued inflation, the larger economy is now experiencing inflationary pressures. Our model is ideal in this environment, allowing us to benefit from top-line revenue increases, but protecting us from margin compression due to input cost inflation. Turning now to slide 10. Slide 10 illustrates that the high margins are resilient despite gold price fluctuations. Crucially, our margins are well inflated from rising inflation, as we are not directly exposed to mine-level operating capital cost inflation. In prior positive price cycles, producers were unable to fully enjoy the benefit of higher gold prices as underlying cost inflation could result in margin compression. Our high margin model is well suited for inflationary environments. Slide 11 provides a breakdown of our 2021 revenues through different lenses. First, we are precious metals focused. In 2021, we had an almost equal balance between revenues derived from gold and from silver, with only 5% of our revenues derived from other commodities, primarily diamonds and copper. Importantly, none of our revenues were derived from oil, gas, or coal. On a life of portfolio basis, we expect 60% of our revenues from gold, 30% from silver, and 10% from other metals, primarily copper. Approximately 20% of our revenues were derived from royalties, such as Fosterville, Young-Davidson, Dargs and others, and 80% of our revenues were derived from streams. Finally, we believe that our geographical breakdown is something that is quite unique and appealing about our portfolio. We have a very high weighting in Australia due to North Park, Fosterville, Dargs, Henty and Stull. The combined weighting of Canada, the U.S., and Australia of 44% represents nearly half of our revenues, and these revenues are expected to increase in the future due to ramping U.S. projects. The Latin American weighting is primarily composed of Peru and Colombia, which are well-established mining jurisdictions. I'll now turn back to Sean to discuss the five- and ten-year outlook.

Thanks, Sheldon. Our portfolio is a great track record of growth, with further compelling organic growth embedded in it to reach our longer-term five- and ten-year outlooks for average annual GEOs of 105,000 ounces, and that's before factoring in any future growth from our ongoing deal-making activities. Our current weighted average portfolio life is in excess of 20 years, providing our investors exposure to multiple price cycles before taking into account ongoing reserve replacements and mine life extension within the existing portfolio, as well as further growth and life extension from potential future deals. We'll be providing our 2022 guidance in March as we receive annual budgets from our partners and look forward to continued growth in 2022. Turning to slide 13, we look forward to continuing to provide the market with a richer and deeper understanding of the quality of our portfolio and many ongoing catalysts. As part of this campaign, we hosted virtual mine tours for the benefit of investors on North Park and RB Platt last December. They're available on our website, and we look forward to educating the markets on the quality of our other mining partners and their assets in the coming months. Slide 13 provides an overview of the many catalysts across our portfolio announced recently, demonstrating the diversification, underlying quality, embedded growth, and long-term optionality in the portfolio. North Parks is expected to commence production from the E26 Lift 1 North Block Cave in the first quarter of this year. That's five months ahead of schedule. In 2023, the addition of feed from E31 Open Pit will allow North Parks to fully utilize the 7.6 million tons per annum, with the further benefit that E31 goal grades are relatively high. Cerro Lindo is guiding for increased contained silver production of 3.9 to 4.1 million ounces in 2022, which is up from 3.8 million ounces in 2021. Zijin has achieved commercial production at Buritica and is already expanding the processing plant from 3,000 to 4,000 tons per day. The expansion is expected to come online in 2022. Fosterville continues to outperform. Drill results through 2021 demonstrate down-plunge extension of the Swan Zone, Cygnet, and Robbins Hill with very high-grade gold in the down-plunge extension of Swan Zone. The exploration spend at Fosterville in 21 was approximately $90 million. Renard achieved diamond price in the latest sale of $171 a carat, representing the highest price realized to date at Renard. Nevada Copper continues to build on the operational improvement achieved over the past two quarters, providing further acceleration to the development and production ramp-up. In December of last year, record underground rates were achieved and surface vent fan installation is scheduled for this quarter. Mining of the sugar cube, the first high-grade area in the east-north zone of the underground mine, continues to be planned for this quarter. Achieving and exceeding 3,000 ton a day threshold during the first half of the year towards the nameplate production of 5,000 ton a day later in the year will be an important milestone for the new mine as they continue to ramp up the underground. The ATO Phase II expansion announced in the last quarter of last year was a significant milestone and represents material upside for our stream. At ATO, COVID disrupted 2021 production due to supply chain issues impacting the China-Mongolia border. Now, the border and vessel congestion unfortunately led to shortages of critical reagents, but STEP has been mining, crushing, and stacking ore, so the supply chain issues are a matter of production delays that are expected to be made up in future periods, again, essentially a timing impact. STEP currently has around 45,000 ounces contained in mined and crushed ore on the pads awaiting leaching. We expect leaching to resume at ATO in the spring, but exact timing in the face of ongoing supply chain disruption remains uncertain. We'll keep the market informed as they progress. And as always, we're excited for positive news from the earlier stage projects in the portfolio, such as Talent's Tamarack project, which we'll touch on later, Easton Barossi, Queensway, and three royalties were acquired in December, which are proximal to Solaris Norte. Turning to slide 14, We have a strong balance sheet, as Sheldon mentioned, and well-established cooperating assets, and assets in the ramp-up phase providing near-term growth. Both parts of the portfolio are contributing to our results, and I'm pleased to share some notable highlights from the current cornerstone producing assets in 2021. North Park was a strong performer for Triple Flag, contributing 14,900 ounces in 2021. Cerro Lindo continued its very strong performance in 21, with 30,700 gold equivalent ounces delivered in the year. Arby's Plaid is performing well, contributing 8,100 GEOs. And Beretica reached commercial production and is now expanding throughput from its 3,000 to 4,000 ton a day. Zijin has done a remarkable job. In 2019, we invested $100 million and through to the end of 2021 have realized $90 million already. Beredica delivered 4,400 gold equivalent ounces in 21. It's been a high return investment and the upside for the silver stream on the large underexplored land package is really compelling. We are pleased to see FOSTAVL have yet another strong year with 510,000 ounces of production, significantly exceeding guidance. And FOSTAVL is substantial exploration upside at multiple large gold systems and will continue to be a cornerstone asset following the Agnico-Kirkland merger. Fosterville contributed 10,300 ounces in 2021. And Young-Davidson also had a great year, as they achieved record mining rates in the first half of last year and commenced the first significant exploration program in 2011. I'll hand over to James to discuss the near-term growth assets and talent, and I'll then cover up the sustainability components.

Thanks, Sean. Slide 15 sets out selected assets that will provide organic growth during the coming years. Sean mentioned the ATO feasibility study announced in October, which represents a 10 and a half year of mine life extension. So it materially increases the life of our stream by more than a decade and is a significant catalyst for both us and the stakeholders to the ATO project. DARS achieved namesake capacity through the quarter of 2021. Production contributions continue to ramp up in 2022 as Aurelia reaches their guidance of 45,000 to 50,000 ounces during the year. Gunnison and Pumpkin Hollow will continue to progress their ramp-ups. Each is contributing to cash flow at present and expected to gradually increase their production contributions going forward. The E22 block cave at North Park will come online in the next several years. Gold grades at E22 are three times higher than the current underground mining areas, so this will be a significant positive driver of GEOs from our Cornerstone and North Park stream from 2025 and beyond. In the meantime, we expect E31, which is an open pit, all source, and relatively high grade in gold, to fill the expanded mill capacity in 2023. Talon is also an exciting story, which I'll talk to you next. Moving the slide to 16, Firstly, we want to extend our gratitude and congratulations to the entire TALON team on the excellent progress made of the Tamarack project in Minnesota, which we believe will be the next low-cost nickel producer in the United States. Tamarack is a world-class nickel resource with district-scale potential and robust economics. We're proud to have partnered with TALON at nearly stage to enable them to acquire their interest in the Tamarack project from Rio Tinto. In 2019, we identified the potentially world-class nature of the Tamarack project and provided them with $5 million of funding to acquire their interest. The high-grade and analogies to nickel deposits such as Neurilsk, Talmac, and Boise's Bay, as well as the relatively underexplored nature of this large system, represents a very compelling value proposition. That, coupled with the excellent team led by Sean Berger and Henry Van Rooyen, have been immensely impressive in continuously delivering our investment pieces of this well-located world-class nickel deposit that could supply the growing needs of battery metals in the North American market, which is very much underserved by opportunities of this quality. The quality of Tamarack was reinforced in January 2022 when Tesla announced an off-take agreement with Talon The delivery is 75,000 tons of nickel concentrate over an estimated six-year period. And in February of this year, Talon exercised their right to partially reduce the royalty rate from 3.5% to 1.85% in exchange for a $4.5 million payment. We also realized a $3.3 million Canadian dollar that is gained on the warrants exercised and sold in January. Thus, we've already generated 1.4 times multiple on our initial investment in a short time frame and continue to hold a 1.85% royalty to share in the upside from the Tamarack project. TALON have also been remarkably successful in proving up the district scale potential of this ore body through continuous discovery through the drill work since we made the investment. So it's a small investment for us, but a good example of our ability to identify good opportunities, drive returns, whether on the typical multi-hundred-million-dollar deals, or on longer-term portfolio additions like this one. And we will continue to add quality battery metal opportunities to our precious metal portfolio over time. I'll turn it back to Sean to discuss sustainability.

Thanks, James. On slide 17, look, from inception, EST has been at the core of who we are and what we do. We published our first annual sustainability report showcasing how we've adopted a first principles approach to ESG as capital providers to the mining sector, including rigorous selectivity and due diligence on your investments, co-investment with our mining partners to support good community relations and enhance their privilege to operate, as well as reporting greenhouse gas emissions, and that's scope one, two, and three, which we see as distinctive, along with our ongoing investments in carbon offsets to ensure carbon neutrality since inception. In addition, we've maintained our zero incident record in physical health and safety and in code of conduct breaches. To date, we've purchased high-quality, independently verified carbon credits to offset over 25,000 tons of CO2 equivalent from our Scope 1, 2, and 3 emissions. We supported regenerated and degraded lands in Chile, creating sustainable livelihoods in Peru, and renewable wind power in Inner Mongolia. For many people around the world, 2021 was a very difficult year as the impacts of COVID-19 continued. We invested over $500,000 in specific initiatives, supporting underrepresented groups near our producing assets and our headquarters in Canada. Our total spend on sustainability initiatives in 2021 was just under $1 million, representing 2% of net earnings and demonstrating our commitment to climate performance and investments in people and communities. I'm pleased to report we continue to make significant strides in ensuring sustainability issues and objectives are embedded in our corporate strategy, which we look forward to further demonstrating in our second sustainability report. On slide 18, we have a strong institutional shareholder base led by Elliott and a blue-chip set of leading global funds and a growing retail shareholder base. As significant shareholders ourselves, we're fully aligned with our fellow owners. You'll recall that we put in place an NCIB late last year and started buying back shares given our undervalued share price. We know we need to grow liquidity, but this was more about sending the signal to investors and supporting our stock in a volatile environment. The immaterial nature of our volumes is illustrated when you consider that we bought back only $1.7 million of shares in the fourth quarter of last year. I believe in January it was something like 8,000 shares, just to put it in context. Turning to slide 19. Looking into 2022, I believe the diversification of our assets and the pure streaming and royalty exposure will stand triple flag in good stead, particularly as we continue to see signs of cost inflation and margin compression across the metals complex and beyond. Our business is producing strong cash flows, which are positioned to increase as the fully funded embedded growth is delivered across a number of assets. On the exploration front, We expect to see more exploration and technical study announcements across our portfolio, as many operators have either commenced or plan to commence drilling programs on our royalty lands. And from a corporate perspective, we firmly believe that a dual Canadian and U.S. listing is the natural progression for Triple Flag, an objective we would like to achieve in this year should market conditions prove amenable. Our deal pipeline is also perhaps the most active we've seen in our nearly six-year history, promising the potential for further growth through deals in the years ahead to build on our successful track record. With no debt, $41 million in cash, and more than $600 million in liquidity, we're well-placed to continue our proven growth track record and enhance the quality of our portfolio. I'm really excited about this next phase of our company growth as a public company and the many possibilities we see ahead. Thank you all again for attending the call. I appreciate you bearing with us with the glitch in the matrix. And I'll now ask the operator to please begin the Q&A session. Operator?

Thank you, sir. At this time, I would like to remind everyone, if you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. Your first question comes from the line of Fahad Tariq of Credit Suisse.

Hi, good morning. Thanks for taking my questions. First on ATO, I appreciate the update you provided. Can you give a bit more color on where things stand in terms of the reagent supply and whether the situation in Russia and potential sanctions would impact alternative supply routes into Mongolia? Thanks.

Fahad, look, we've been in constant contact, as you'd imagine, with the management team. We obviously don't want to get ahead of their disclosures, but we're aware that they are pursuing... multiple supply fronts, which we hope to have news on in short order. I'm not aware of any concerns on the Russian front at this point. Obviously, it's in the news and it's topical. But the team itself, I know, are pursuing multiple supply sources on several fronts. So we hope to have some news on that front fairly soon.

Okay. In the release, there was a portion where you mentioned strategic possibilities in reference to the company. What did you mean by that?

Yeah, if you look back at our history, it's been interesting to us that there have been some transactions with counterparties who recognize the ability for businesses like ours where there's re-rate potential rather than just take cash, they actually want equity exposure. And as a previously private company, really that was just too hard. I mean, for companies to want to take equity exposure in a private company and then have to diligence a fairly substantial portfolio, that's a lot of brain damage. So having a public currency really does open up possibilities we've seen over the last few years that we couldn't participate in meaningfully. And at the same time, you know, if there's value opportunities as the market looks at consolidation in the future, you know, those are things, of course, you know, we can potentially participate in. So that's really what I mean. Appreciate the call. Thank you.

Thank you. Thanks a lot.

Your next question comes from the line of Greg Barnes of TD Securities.

Yes, thank you. Sean, I know guidance is coming out in March, but Can you give us some ballpark ideas about production for the next several years, possibly from North Park and Bredico once these expansions are complete?

Yeah, okay. Greg, the first thought on that, it's been interesting for us, even in the last week or so, you saw the Cerro Lindo news and you've seen what that meant for their sort of core activities, but you've also seen the Silver news, which is obviously a positive thing You'll see when you look at our guidance in the last year, we will continue that posture of being conservative, particularly in this sort of uncertain environment that we find ourselves in as we set guidance. And that will be a posture we'll continue to adopt. But our five and ten year outlook that we provided is very much intact and that's how we think about that. I think the North Park's You've seen the comments about E31 and the sort of good performance that the team has delivered there on E26 Lift 1 North. I see this as a transition year where the end-of-life cave, which is lower grade, transitions out. We'll see that E26 Lift 1 North come up. The capacity gets utilized more from 2023 and beyond, and then significant higher goal grades. in that sort of, you know, two-year-plus horizon. And you'll recall, I think it was the 2025 horizon, I think it was, what, E26, which has three times the gold grades. Yeah, or 22. That's something when you start looking beyond, let's say, the next few years, which is an area that I think will be a significant gold-ounce catalyst at North Park. And then it's just the ongoing posture, as we mentioned, with the ongoing ramping assets. We will always maintain a sort of conservative posture when we think about guidance setting. I think you saw that play out this year, even with the situation at ATO. The risk of the portfolio actually rallied quite well. So stay tuned. I think Franco last year put out theirs in March. Royal Gold also puts out theirs in March. We'll be doing the same with the benefit of info from our mining partners.

Okay. Fair enough. I guess, James, your comment about adding battery metals to the portfolio over time, do you include lithium and obviously nickels in there? What else are you looking at, and how far would you go?

Yeah, I'll comment and ask Sean to add on, Greg. But nickel is quite a good example, and Tamarack in particular is a good example, where we like the fact that that project's quite unique in many respects in terms of its potential, very high-grade geographical location. So, you know, under the right circumstances, you know, we obviously took that exposure on board. You know, our expertise amongst this team is certainly more skewed towards you know, base metals, nickel in particular. So that will be our focus when it comes to battery metals. But, you know, Sean, I'll ask you to comment on, you know, some of the other, the more reflected commodities.

Yeah, you know, Greg, I think just adding on to that, you've seen the bulk of our non, like 90% of our portfolio is really gold and silver. And the bulk of the remainder is actually copper. There's a lot of, you know, byproduct precious or copper ore bodies out there. And we see a lot more opportunity for those coming online in the years ahead where we can be a sort of patient source of funding. But I think to James' point, you know, we've looked over the five years at everything from spodumene to bryans to various bits of cobalt at different points in the cycle, we will always think very carefully about the weighting in the portfolio. And I think distinctively with the scale we're at and our gross profile, we see ample opportunity to actually have symbiotic addition of pressure streams where we're not competing for the primary thing that the actual underlying operator covers. So if you've got a copper asset like North Park's, You know, they don't really care about the gold and silver, and there's a natural arbitrage. So we like those deals. I think 65% of our portfolio is actually byproduct derived. So, you know, we'll actively look for more of those. Okay. Great. Thank you. Thank you.

Again, if you would like to ask a question, simply press star then the number one on your telephone keypad. Your next question comes from the line of Cosmos Chi of CIBC. Thank you.

Thanks, Sean and team. Maybe my first question is on your deal pipeline. Sean, as you mentioned last year, it wasn't the most active, but it sounds like the pipeline is really good at this point in time with about $600 million of liquidity. You know, can you give us a bit more granularity in terms of what that pipeline looks like, you know, size of those deals? For example, you know, the one that you did most recently, Bofor, not the largest deal you've done. You know, should we be looking for potentially bigger deals, or how should we look at it?

Yeah, Cosmo, it's obviously an evergreen and important question. I think the first – important feature we try to propagate is on the one hand, there's probably more activity that we've seen now than I think at any time previously. It really has been quite significant. We see a lot in this sort of smaller side. We're aware of some that are larger, which we don't feel a good portfolio fits for us, for example. We're always doing very large, let's say, proactive outreaches, which we think could be symbiotic, which we see as longer-term relationship building and things which, if there's a good use of proceeds, could culminate in a deal. And so good examples Although there aren't like massive, like RV Plat would be one where we've identified that proactively. We saw a natural arbitrage. We started that conversation at the site of a mining conference. And then four or five months later, that germinated into a transaction. You know, we've seen a lot more on the mine development front. I think if you see some of the announcements that have culminated from some competitors recently, a lot of those have been actual transactions. development stage single asset businesses um often quite you know unfunded and sometimes even quite early stage i think we're seeing a fair bit of that activity um in the immediate future we see some in the you know few hundred million dollar size that will be coming to market uh which are perhaps non-core in nature within existing portfolios the smaller stuff we don't focus on particularly so like before was um just an opportunistic addition where we saw something for a reasonable return in the market recently where we've perhaps seen a little bit more aggressive behavior in the sector. And I think the main thing is we're just going to continue to be very patient and discerning. You know, some of the most valuable companies in the sector, when you go back a number of years, made a huge virtue of their long-term horizons and their patience. We own a lot of equity in this company, and we're not about to frivolously invest our shareholder capital on things that we don't think make good returns and are good deals for us and our partners. So hopefully that's a bit of context, but there's a hell of a lot of activity on the go at the moment.

Yeah, that's great to hear. Maybe, you know, digging a bit more detail into this, I think in the press release, you know, you talked about for the press release for Bofork, You talked about, you know, minimizing taxes since you have existing tax pools. Maybe, Sheldon, could you update us on the tax pools available and how that kind of factors into, you know, your deal pipeline?

Yeah, thanks, Cosmo. Hi, Sheldon. With our structure, and this is actually specific to us, this is just Canadian tax, With royalties, Canadian royalties, you get to basically deplete the entire pool of cost you expended on the royalties up front. And so that generates some good tax yield. And then also there's just all the G&A and public company costs, for the most part, are based out of Canada. And so that's why we put that mention in there that, you know, we are not cash taxable in Canada right now and won't be for a number of years. The cash taxes that we do pay are out of Australia, and we pay at the statutory Australian rate. It works out to about 25% to 30% of tax burden on the Australian royalty revenue. So that's the context there.

Okay, great. And then maybe switching gears a little bit in North Parks, you know, very good to see that they're five months ahead of schedule on the E26 lift one north block. Maybe if you can give us a bit more detail in terms of how they were able to get there so much ahead of schedule. And then on top of that, you know, as we look out, is there any kind of read through in terms of future expansions and ramp ups at the asset?

Yeah, you know, the timing, Cosmos James, on the development side, you know, it's really just through good execution on the block case and decent planning. So that's quite straightforward there. You know, on the expansion project, the middle expansion project, they encountered a few delays, you know, in commissioning certain elements of the processing circuit and that sort of thing, but, you know, really quite minor in the grand scheme of things. So that's fairly straightforward. They now have the expanded processing capacity that really drives great performance when E22 comes in. And Sean already mentioned the goal grades associated with E22 are that much higher. On what we're looking to over the next year or two, before E22 comes in, is opportunities at the mine to bring in open pit feed from E31, which you might recall has relatively high gold grades as well, to fully utilize that 7.6 million ton capacity. In terms of future expansions, from our point of view, and as far as our understanding goes, 7.6 million tons is where the mine is at at the moment, and it's really about fully utilizing that mill capacity as opposed to stepping up above and beyond E31.

Cosmo, I just want to raise two features that I think are worth noting when you think about North Park and your question about drivers, about performance. You know, when you think about two features in Australia and not just Australia, the one is places like WA with COVID and relative difficulty of getting in a lot of the skills that are needed. You've seen challenges with inflation and sourcing of key skills. In the situation with North Parks where you've got a workforce that really lives close by, a few hours from Sydney, they've really had quite a stable workforce situation, which is not necessarily the same in many other mining contexts, not just in other parts of Australia but elsewhere. They don't have a fly-in, fly-out workforce, for example. They can quite easily hop on another plane and go somewhere else. So I think that's an important feature just to recognize. And also when you've got a team that's really been operating for 28 years and doing this on a fairly regular basis. It's not like they're putting a greenfields operation in place here. There's one cave after another where they develop the next plan, bring it into production, and then move on. This is a team that knows what they're doing, and they've been doing it for quite some time. I think that is a large part of the driver of what you've seen there. I think it's a risk, as you think, to the future for many mining situations. particularly development stage right now, capital cost inflation, sourcing the right skills, supply chain disruption, those are areas we have been for a while and will continue to put a hell of a lot of scrutiny on because I think they can significantly undermine returns in this environment. It's an area of significant focus, I think, for us and I'm sure for others in the space.

Yeah, thanks, Sean. Those are very good points. Those are all the questions I have. Thanks again for the conference call.

Thank you.

Your next question comes from the line of Jaka Yusconic of Scotiabank.

Good morning. I think that's me. Good morning, everybody. So I have a couple of questions, if I could. The first one, I just wanted to circle back to just the transaction, the environment that you're seeing. Just wanted to make, just on the couple hundred million dollar transaction size and precious metals that you're seeing, I think, Sean, you mentioned that it's mainly in development assets. Did I hear correctly?

Look, we've seen and we have seen quite a lot of development stuff. You know, we've got visibility of some non-core things that are likely on the horizon extremely soon, which will be precious. So I think you continue to see these sort of periodic unforeseen surprises and some that we've worked on for years. that ultimately come to market when they come to market. And then we've got the sort of evergreen things that were exclusive on one situation that we've been working on for some time. And if we get a plan we think we are capable of underwriting, you know, we'll obviously do a deal and we'll announce it. But it continues to positively surprise me the things that are coming to market that I think maybe even four years ago we probably wouldn't have seen because I think there's a broader acceptance of this form of funding, particularly stream financing, actually.

And in the stream financing and the precious metal side, is it mainly from base metal producers or how you, you know, what percentage would you say are from base metal companies?

I actually see – I can't give you a percentage. I would say we're seeing quite a lot of byproducts. That's our sort of favorite. I think, as I said earlier, about 65% of our portfolio is actually byproduct-driven, which I think really drives the portfolio duration that we're seeing. And when I look to the future, I think increasingly not just for us but for the sector, I really see that there's an outsized opportunity for investment in polymetallics, Really, we're precious. Again, a diversified trading at four or five times EV, the dumb multiples, there's no strategic significance to the precious metals for them. If you can provide that lower cost of capital, non-dilutive natural arbitrage and capture that and share it, it just makes sense. So I think we see not just ongoing activity in that vein, but I see opportunity for a lot more of that in the five to 10-year horizon.

And then anything in the royalty portfolio side, do you see opportunities there, or are they just the smaller deals?

That's a good question. Look, we're aware of some stuff that's quite large. You know, there's some things around net profit centrists and other things which we don't have exposure to and I'm not sure about. But, yeah, things like those four are just opportunistic. We see other guys who spend a lot more time focusing in that area. And usually if we pick them up, you know, it's either because we've managed to find a differentiated perspective on the asset or occasionally it's just part of a larger portfolio that we think works for us. But you've seen the new entrance there. You've seen how much activity is in there, including a hostile recently. So, you know, I don't know how that plays out, but it's not much of a focus for us.

And then just two other questions. You mentioned some larger size precious metals deals that don't fit your portfolio. Am I gathering those larger size deals are greater than $500 million?

No, I need to remember the context of that. No, I'm quite happy to do deals bigger than $500 million. We have with North Park, as you recall. So, no, I can't recall the context of that. For us, it's a question more of the fit, either with views on the operator or the jurisdiction or otherwise. And I think it wasn't precious. It was more non-precious that I was referencing earlier. You know, we're quite thoughtful about concentrations in the portfolio outside of precious. So we are seeing some larger ones that are non-precious oriented that we think just won't fit for the portfolio at this point in time.

Okay, then just my last question on that. If that's the case, the battery metal size transactions that you're seeing out there, what size would they be in?

That's a tough question to answer directly because there's some very large ones that we're aware of and that, you know, if we did participate, it might be as part of, you know, a broader participation where we would size our participation for the portfolio. I think, as James said, it's an area that, given... Our careers, you know, we've got quite a lot of capability and insight in, but, you know, we're not in the habits of building for the triple size pressures, sorry, battery metals. It's really more that symbiotic emphasis on byproducts that we see opportunity in the future.

Okay. And then maybe if I could just move on to Ciaro Lindo. I just wanted to get an understanding, and sorry, there was some technical difficulties, so I didn't quite hear everything. But just on the mine plan that was put out, we do have lower throughput, lower zinc grades. Maybe just on the better zinc production that you're going to be expecting in the next couple of years, just maybe a little bit on what's happening there with the ore body.

Yeah. I'm going to ask James to provide color on it, but I'd say the broad thing for us, which was really appealing when we looked at Cerro Lindo, is just that really low-cost nature of of their ability to sort of not just mine but to continue to add to reserves. And if you remember, Tanya, we're getting close to 80% recovery on our initial investments, and the silver reserve is the same as when we did the investments nearly six years ago. So, you know, that's sort of the backdrop. The reality is that we've seen them continue to extend and find new discoveries. And I think what we're seeing with how they're evolving now in low throughput reserves and the focus on grades and other zones there is actually consistent with how we've viewed this opportunity for many years, actually, and is consistent with that sort of five- and ten-year outlook. We've actually been positively surprised with the three-year guidance numbers they've actually just put out, for example. But, James, I don't know if there's another color you'd want.

Yes, thanks, Sean. You know, I think as you look at Sarah and David, they've been mining about 1.6 million tons a quarter for a while. Whereas if you refer back to the technical report that was put out, I suppose, last year, they called for about 7 million tons for 2022. We've had the philosophy, which I think we've shared before, that there's probably a more optimal operating scenario where the all-body recovery is maximized, the dilution is reduced, and the throughputs are moderated accordingly, which for us actually works quite well, which is kind of reflected in what these guidance numbers come out of. So, you know, we're pretty insensitive to it, and we actually think that the philosophy is the right one to, you know, maximize value from that all-body, both for NEXA and for us. So, you know, we see that as being quite constructive. And I think when you look at the history of the ore body, there's a very, very large bulk mining scenario. And basically, as you track through the proportion of primary, secondary, tertiary stoves versus production rates, you know, as the miners move more towards secondary and tertiary stoking, you know, production rates have declined, you know, accordingly. So it sort of makes sense to the ore body. And then towards the southeast of the mine... Next, for the last few years, has been discovering some narrower, but still, you know, tens of meters thick, high-grade zones, which typically carry quite high silver grades, more so than the main ore body. So those lend themselves to, you know, lower-volume mining for two reasons. One, they're narrower, as I mentioned, and two, they're further away from the surface access. but they provide really good, great feed and have been, you know, occasional sources of positive variants of the silver stream. So I think that's sort of the way the mine has performed and the way it will continue to perform. And then we mentioned in the press release, NEXRA has discovered an area called Pukasala, which is quite a long way to the north. But, you know, we view that as a positive development. You know, anything but further the life of the asset, it is obviously very beneficial to the stream and they continue to be very active exploring the stream area. So that's sort of how we look at it. I hope that answers your question.

Maybe just overall to understand, is it that we are getting better silver grades in the next two years because we are in these vein, very higher grade vein, narrower vein, silver veins that is causing the increase in grade?

I think it's a bit of a combination. I don't think it's exclusively that. At this stage, we haven't done a detailed reconciliation between the new three-year guidance and gone into the block model and all that sort of stuff. So we'd have to do that to give you a robust answer. But at those still very high production rates, mine is still heavily reliant on these mass mining It's not a complete shift. It might be a partial shift.

Okay. Okay, thank you.

I'm showing no other questions at this time. Are there any closing remarks?

Look, operator, thank you for rolling with the punches on this. I appreciate everybody else who joined us, the thoughtful questions. Thanks for being part of our first set of results as a public company. I really appreciate it. I hope you enjoy the rest of your day.

Again, thank you for participating in today's conference call. You may now disconnect.