Triple Flag Precious Metals Corp. Common Shares

Thank you for standing by. My name is Bailey and I will be your conference operator today. At this time, I would like to welcome everybody to the TripleSlide Q1 2023 results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star and the number one. And I would now like to turn the call over to CEO, Sean Usmar. You may begin.

Thanks, Bailey. And good morning, everyone. And thank you for joining us to discuss Triple Flag's first quarter 2023 results. Today, I'm joined by my CFO, Sheldon Vanderkooy, my Senior Vice President of Corporate Development, James Dendle, and I'll also be joined by our Vice President of Talent in the SGKD Board and our Vice President of Finance, Eban Bari, in the Q&A section. So into slide four, the first quarter of 2023 was the first since completing the acquisition of Mavericks Metals, which contributed to another record quarter for Triple Flag. This includes sales of 26,599 gold equivalent ounces, resulting in revenue of $50.3 million, and operating cash flow of $38.9 million, which are new quarterly records. We've also seen a more than tenfold increase in trading liquidity with the addition of many new quality investors to our register, as well as inclusion to the GDXJ, S&P and TSX Global Gold and Selective Global Silver Miners Indices. Our portfolio continues to perform well and the assets that we acquired from Mavericks have shown great progress and continue to reinforce our investment thesis. Operational performance at Camino Rojo and exploration success at Beta Hunts are two highlights. I'm also grateful for my team and the former Mavericks management team who work well together to deliver the integration of the two businesses to a high standard and enabling us to achieve the anticipated run rate of 7 million US dollars in annual synergies. Finally, I'm very pleased to report that as we celebrate our seventh anniversary as a company and second anniversary of our initial public offering, our share price is up 31% in US dollars and 45% in Canadian dollars, with a lot of room to continue to close the gap with our senior peer valuations as we continue to focus on delivering value to our shareholders. I'll now turn it over to Sheldon to discuss our financials for Q1 2023. Thank you, Sean.

Turning to slide 5, we had a record first quarter, realizing over 26,500 gold equivalent ounces, reflecting the addition of the Mavericks assets to the portfolio. Operating cash flow in the quarter was also a record at nearly $39 million. Adjusted net earnings in the quarter was $0.07 per share. Adjusted earnings was impacted by the step-up in value of the Mavericks assets on acquisition, as well as additional costs in Q1 due to the Mavericks acquisition in the quarter. We remain on track to realize identified synergies of at least $7 million annually from the transaction. I also want to highlight that we recorded non-cash cost of sales of $5.6 million relating to gold sales from prepaid gold contracts. This equates to $0.03 per share. This is purely accounting. This is a non-cash expense moving to the income statement. Our cash flow in the quarter was $0.20 per share, a 15% increase over the corresponding period Our asset margins on the quarter were 88%, slightly lower than the 90% levels we have traditionally experienced. This figure was impacted by acquisition accounting, as metal inventory on Mavericks' balance sheet on the acquisition date was recorded at fair value and unsold during the quarter. Going forward, we forecast asset margins to return to the 90% levels. We also declared our 5 cent per share dividend. Upon payment of that dividend, we will have paid over $65 million in dividends to shareholders since our 2021 IPO. I'd also like to comment on our strong balance sheet. Our total cash outlay on the Mavericks acquisition was $146 million, consisting of cash consideration paid to Mavericks shareholders, cash paid to retire the Mavericks credit facility, and transaction costs incurred. At quarter end, we owe $80 million on our evolving credit facility, Subject to new investments we may make, at current metals prices we forecast that internal cash generation will allow us to be debt free by year end. I'll now turn to slide six. Slide six highlights three very important aspects of our portfolio, meaning asset diversification, precious metals focus, and a portfolio which is predominantly centered in the Americas and Australia. Our revenue diversification meaningfully increased with the addition of the Mavericks portfolio. Faralinda was our biggest contributor in the quarter with approximately 28% of quarterly revenues and no other asset accounted for more than 15% of revenues. In the past quarter, gold and silver accounted for 95% of our revenues, amongst the highest precious metals percentages in the sector. And by geography, the country with the greatest contribution to our revenues was Australia, and after Australia, our portfolio was predominantly located in mining-friendly jurisdictions in the Americas. I'll now turn to slide seven. Triple Flag went public in May of 2021, so we are approaching our two-year anniversary as a public company. Looking back, I'm proud of the progress the team has made in these two years, and I am excited with the future possibilities. First, I'd like to look back on our share price performance since IPO. I think it is fair comment that many IPOs disappoint on share price performance. Our IPO investors have been well rewarded for their trust in us, Our share prices increased over 30% from IPO, well in excess of our peer group and the JDX performance. In addition, we have declared dividends of over $65 million since our IPO. We have increased the scale of the portfolio meaningfully. We are guiding for 100,000 to 115,000 gold equivalent ounces in 2023, as compared to 63,000 in 2020. We see this increasing to over $140,000 in the next five years. Our portfolio now totals 229 assets, increased from 75 at our IPO. We now have 29 paying assets as compared to 15 at IPO. Our ESG practices have been recognized by Sustainalytics as we are ranked fourth out of 114 companies. We expect this to continue in the future. In 2022, we increase our dividend and our cash flow continues to grow. In 2022, we also listed our shares on the New York Stock Exchange, increasing access to U.S. investors, and in 2023, our shares were added to three indices. TripleSight has made much progress since our IPO, and we are well positioned to continue our track record of creating shareholder value. I'll now ask James to speak to some of our proposal highlights.

Thanks, Sheldon. Overall, portfolio assets are performing well. We expect deliveries from North Park to be back-end weighted with open pit mining of E31, which hosts a higher gold grade than the current one of mine. In Peru, unusually heavy rainfall caused by cyclone Yakut affected the region in which Cerro Libre is located, resulting in the suspension of production for approximately two weeks during March. Next, we expect to increase production in the coming months under the maintained 2023 guidance. Also, drilling in the southeast area of the mine is continuing to extend mineralization, which benefits Australia. The Minerova, a gold mine operated by Orla Mining and acquired as part of an adverse asset at transaction, is performing the plan and is on track to meet its 2023 guidance to 110,000 answers. Fosterville poured its $4 million quarter since beginning the SILIFI project in 2005 which is particularly impressive when one considers that the mine had a reserve of around a million ounces at the time. Agni Care Eagle has reported that abatement trials of the new low frequency noise were completed in the first quarter of 2023. I believe that the results are promising and they're now being considered by the EPA with respect to current prohibition notices. Agnico has reaffirmed its guidance for the year at Fosterville of between 295,000 and 315,000 ounces. Corolla announced record-breaking results and strong expiration results of Betahunt, an Australian goldmine we acquired as part of the Manfred's transaction. From our perspective, the expansion to 2 million tons per annum delivers near-term growth and a strong expiration result to this and Betahunt for a long future. I'll turn it back to Sean.

Thanks, James. So turning to slide 9, Triple Flag transitioned from a private to public company two years ago with a concentrated shareholder register with limited liquidity. Our portfolio characteristics compared favorably with our targeted peer set in terms of duration, cost position, precious metals concentration, our focus on royalties and streams, and our jurisdictional concentration in good mining regions. The impediment to our valuation potential was dominated by a limited liquidity profile. Our focus remains as substantial owners of this business and continuing to build value for our investors in a visitor manner as we have done the prior five years since founding the business. We're now very happy to see our shareholder base expand since the Mavericks acquisition as we welcome many new investors into our stock. As shown on this chart, Our three-month average daily credit volume in the first quarter of 2023 increased by over 10 times compared to Q4 of 2022, all while continuing to exemplify our belief that strong management and insider ownership is critical for a successful business. This dramatically improved liquidity profile has been a primary driver of this enhanced investor interest and bodes well for the future as we seek to broaden our investor appeal and ownership. removing an obvious obstacle to closing the valuation gap with our senior peers. We view our alignment with our shareholders as a differentiating part of our business strategy, acting as owners and being prudent shepherds of our capital. So moving to slide 10, we embarked on a journey seven years ago to build the next senior precious metals streamer and provided competitive structured finance to an underserved mining sector while seeking to add value to our mining partners beyond the competitive cost of funding via our approach to ESG, our commercial and technical capabilities, and our global networks. I believe our track record is revealing the quality of this team and the ability to execute against our strategic objectives. As major shareholders ourselves, our focus remains on disciplined deal execution and value creation, pursuing sensible and accretive deals in a patient manner rather than pursuing growth at any cost. We appreciate the support and trust of our stakeholders and we look forward to providing further updates soon. Thank you. With that, I'm very happy to answer any questions.

Thank you. At this time, I would like to remind everyone in order to ask a question, press star and the number one on your telephone keypad. And your first question will come from the line of Cosmos Q. Your line is open.

Great question. Thanks, Sean, Sheldon, and James for the presentation and taking my questions here. Maybe my first question is on accounting. Just want to dive a bit deeper into the $5.6 million and the non-cash adjustment to cost of sale related to prepaid contracts. Has there been a change in accounting policies? Is this related to contracts coming from Mavericks? I'm just trying to get a sense in terms of what happened here, if there's any changes, and how we should look at it on a go-forward basis.

Hi Cosmos, this is Sheldon. As a technical matter, it's not an accounting change, but I think it might be perceived as something akin to an accounting change because What it is is the revenue from the prepays comes through, and this does include the Oremet contract. We had a small prepay on our Q4 statement, but this has just grown in amount. I think that's what gave it a little more prominence. The cost of sales comes through and reduces the earnings, but the bulk of that relates actually to the acquisition cost of the Oremet contract that we acquired on the acquisition. What Mavericks did previously is it adjusted that out as an adjusting item when it bridged from earnings to adjusted earnings. But when we looked into this with the accountants, we determined that wasn't appropriate because it was an adjusting item. But we want to stress it has nothing to do with any issue with the actual contract. It's actually purely accounting and the cash flows fully show up with the non-cash charge.

I agree, because I think earnings came in lower than consensus, but your cash flow came in bang on. So I agree it's an accounting thing. But on that, is this recurring? How do we look at it in Q2, Q3, and Q4 coming up?

So the prepays, they actually get revalued. They're considered a financial instrument. And then the cost of sales will basically be what the marked up cost is. So when you look at our prepaid volumes, in order to determine what that non-cash charge would be, it would be the per ounce value on the latest order, quarterly mark. And so we should be able to work through quite well with that to understand what the cash flow impacts are. The cash flow impact is both directly the cash flow but what the EPS impact is.

Okay, great. Maybe switching gears a little bit. Sean, as you mentioned, strong start to Q1 on track to hit your four-year guide in the 100 to 115. I know in the past you never really gave us any indication in terms of quarter over quarter, but I'll try anyways. It sounds like there's a North Park shipment that didn't make the cutoff in Q1. Could come in in Q2. Looks like RB Plus implementation of operations strategies could improve in future quarters. So are we looking at a Q2 that's going to be stronger than Q1? And how does it kind of look quarter over quarter?

Yeah, Cosmo, I know we'd all like the sort of comforts of more sort of metronomic and reliable quarterly time frame. I think it was interesting seeing Bill's comments in his earnings recently where he talked about just the variability particularly associated with streams of business and stream deliveries and you mentioned North Parks. We've got several of those sorts of things where within the period of a year and beyond you have a pretty good line of sight to that but quarterly shipment windows are just not things that I want to opine on, just given, for example there, you came from New South Wales on rail to port, then all the way across the hemisphere to either China or Japan. And there was always room for slippage around the courses. So I think we feel very comfortable with what we put for the year. James' comments as well on things like Wolf Pass, and even things like RB Platts and that should be back in weighted. But I think you're still going to see some of the variability around windows or periods. And you saw that last year, right? I think within the fullness of the year it revealed itself, but you still get the variability on quarter to quarter.

Great. Maybe one last question about a copper. I guess yesterday they announced a butt deal. So I just want to understand the situation. It sounds like they have likely over $100 million committed. I guess my question is in two parts. Number one, how much more is triple play in terms of commitment for further sort of capital injection? It sounds like $10 million is conch A, but there is one third that's Triple Flag, the $15 million in metal deliveries for Promise that will be reinvested. Another potential increase from $25 to $35 million in terms of the credit facility. So how much more is Triple Flag, you know, in terms of your commitment on a go-forward basis? And then if you can talk to, you know, they're getting capital injection in total of over $100 million. Is that sufficient for their underground sort of restarts?

Yeah, look, firstly, we're really pleased with the announcement and I think the very strong support that the sort of key investors between, particularly Parler and Mercuria, who are contributing equity alongside ourselves, you know, for this. And look, Randy from Albanese, the team, have made some really significant progress. I think the funding, which was announced late last year, this is very much consistent with Precious Metals Corp. Common Shares, Fraser Cunningham, James Edward Dendle, Leshan Daniel, Andrew McLarty, Charles Warren Beil, Eban Bari, Magda Augustyniak, Sheldon Vanderkooy, David Lee, Rob Goddard and Dr. DeMille, which is an important feature. And just to remind you and others on the call, I mean, we've not included ounces from this in the 2022 guidance. Indeed, any ramping assets, that's always been our stance. So I'll give you that as a backdrop. I think the commitment from us, and I'll ask Sheldon to comment. He's done a wonderful job leading the negotiations on our behalf on this. but it's a modest period where consistent with our business model we've got a very secure position overall in the capital spec which we've maintained and we've really spread the cash component of this and have the smallest incremental contribution of anyone in this period.

Hey Cosmos, I mean Nevada Copper put out a pretty wholesome release yesterday and there's a lot of components to the package but With respect to us, it's actually quite a bit more simple. It's $150 million package in total, and our commitment under that is just over $21 million, and it comes in really two pieces. One is there's a couple of tranches of A2 debt, and that's senior debt. It's only junior. It's only subordinated to the KFW project financing, but it fits in second main position. and of the total of 20, we're committing to a third of that. So that'll be $6.6 million. And then the other thing that we've committed to is, subject to certain conditions, we will reinvest net stream cash flows of up to $15 million in 2023 and 2024. And so what that means is deliveries that are made under the stream We'd realize our net proceeds after the ongoing payment, and then we'd lend them an equivalent amount of money. And that lending would actually come in at the A2 Level 2, so that's nice and secure from our standpoint. But that is capped at the $15 million. It's only if Nevada Copper needs the funds. and it's also limited to the net cash we need on stream delivery. So there's no net new fresh cash outflow on us for that component. So we thought that was quite reasonable from our perspective.

And Cosmo, I think just one thing to add which I think is worth highlighting is the package which was announced really does a lot to clean up the balance sheet for investors coming in. It's I think over $80 million of and Polly Depp that is being equitized, which I think is a welcome development.

Great. Thanks again, Sean and Gene, and those are the questions I have. Thank you. No, thanks. Thanks, Kuzma.

And your next question comes from the line of John Burr. Your line is open. And John, if you're speaking, we can't hear you right now. You may need to unmute locally. All right. The next question comes from Shane Naisley. Your line is open.

Thanks. Maybe, Sheldon, best for you. On the global minimum tax rate, if I recall correctly, Mavericks didn't have any Thanks Shane. It's something that we, along with a lot of other companies, are monitoring

First of all, just on the Mavericks portfolio, you're right. All of their income was effectively subject to Canadian tax or tax in Australia or the United States. They didn't have the offshore structure that some of the streaming companies do. And we've maintained that. So we haven't moved any of their streams offshore. We've maintained status quo there. In terms of low minimum tax, I mean, the latest statement there is that the pillar two is Schedule to come into effect for 2024. The Canadian government has made statements that it intends to meet this timeline as well. We're still waiting for the legislation from the Canadian government, but we expect to see that I believe over the next few months. It's interesting because there's a A minimum revenue threshold that's been put out by the G20, which is the 700 million euro threshold, and we're well below it. So if the Canadian rules are in accordance with the guidance that's been put out to date, we actually would fall below it and we wouldn't be subject to it, which of course would be good. But if you take the hypothetical that it does apply in 2024 and it does apply to us, The impact is fairly muted. It's a less than 4% impact on NAV, on our calculation. So it's, you know, I prefer not to pay the global minimum tax, but it's not too large a point.

Great, thanks. And then I'm trying to give out quarterly delivery guidance, I understand, but just on Sarah Linda, we've seen a few moving points. Pieces, obviously they increased their quotational period at the end of last year, had the heavy rainfall in Q1. Without, I guess, specific guiding to the quarter, but when would you expect to get back to, I guess, a normal delivery run rate from that asset? Thinking the latter half of Q3, something like that?

Yeah, look, firstly, I think we're through the QP moves that we sort of telegraphed and commented on last year. I mean, it was obviously a fairly sizable commercial move that we'd experienced. And, you know, I think even though Cerro Lindo has reiterated or NEXA has reiterated the Cerro Lindo guidance or MDB guidance for the year, you know, the two-week window will have some impact on us in terms of timing of deliveries on the quarter. But you can think about, I mean, their run rates have actually been on an annualized basis, very robust for us in terms of silver deliveries. We expect the same for this year, and in fact, in our five-year outlook, I mean, 2025 is seen as being a sizable increase. James?

Yeah, I mean, for the quarters, it's sort of generally, you know, we've been consistent over the first three quarters of the year, but then we're expecting, you know, some increased deliveries towards the back end, so I suppose that In aggregate, it's expected to be back-end weighted. That was the view we had earlier this year. We'll have to see if the, you know, cyclonic activity and suspension experience impacts that timing. But generally speaking, it was, you know, weighted tools that have got half the efficiency.

I'm going to say, Cosmo, just a philosophical metaphor for yourself and Cosmo's earlier question. Someone who's always been in mining companies where you actually have controls of the reins with finance teams that provide forecasts, let alone most mining companies struggle with. I think what you're doing is seeing through us, you're seeing through finance teams and the uncertainties and variabilities. I know it's fairly obvious, but we're always going to, I think, try and adopt just a fairly A level-headed view when we put this out because I think you'd appreciate when you look back over time in any of these things, you always have sort of quarterly variability. I think the annual guidance is the area that we're going to continue to focus on. So I have a lot of sympathy for the difficulties in the quarterly spreadsheets, but it's very hard to say take the annualized number and divide by four because it's just never like that, right?

Absolutely. Thanks for the call from me. Thanks so much.

Again, if you would like to ask a question, please press start and the number one on your telephone keypad. And our next question comes from John Tumazos. Your line is open.

Thank you. And just elaborating on the last discussion, quarterly earnings are meaningless for gold companies because most of the fluctuation are almost measurement precisions for grade estimation to a tenth of a gram. So that it's good of you not to waste your time on quarterly guidance. My question involves how you evaluate new investment opportunities. This triple flag is so much bigger with Maverick's with debt almost repaid and twice as many producing assets as the onset. How many professionals with the merged firm are evaluating new investments? Do you read submittals from third parties or investment dealers or whatnot? Or do you rely on your own historic relationships and proactively proposing seek deals. For example, Sean would know all of the fraternity of ex-Barrick managers from different waves of regime change at Barrick. It's a big fraternity across the industry. Seeking out deals proactively is one allocation of time as opposed to reactively looking at proposals. Please.

John, it's great to chat to you. Look, I think as you probably appreciate, we've done most of our deals practically. We get to see all the bank-led stuff and it's not like we're not going to participate and a number of our assets that we've added to the portfolio have come via that channel, but the vast majority have come via networks and essentially bilateral deal flow. Just this week again, we put out several proposals via that channel of generative work that we've done. We must be approaching 700 opportunities over the seven years, so you can figure out the amount of shoe leather that it takes to actually convert those into real deals on the other end. A huge number just go nowhere. Some have a gestation period that occasionally when there's a use of proceeds or a good corporate need. And very often that can be in the form of things like people looking as part of their capital stacks in an acquisition or otherwise for a partner that they know will help structure a deal in a very sort of reliable and timely way in a competitive fashion. Because we often get the question from investors, well, why would a management team ever do that and not just go out and run a sort of competitive process? And the answer is, if you've got a limited execution timeframe, you want to go to a team that's knowledgeable, has a track record, and can actually get things done. And they know that you're not going to jam them last minute in order to squeeze more basis points or do things that would not help them in the ultimate goal of, say, landing a deal on an acquisition. So that's the backdrop. You know, the earlier part of your question, you know, the Mavericks transaction, as you'd appreciate, you know, they were, you know, they added 26%, well, they got about 20, call it a quarter or so, the shareholders of the business. And, you know, there's a lot of duplication of effort. These are We're not adding another mining company. So really what we've done with the integration is we've been fortunate to bring across Warren Beil, the general counsel. That's the one net addition. Essentially the team, the focus and the capability is on the dealmaking front is the same as it's been for the last seven years. and a lot of that has been predicated on the way we ran M&A at Extrata. I've worked in BS3 Billiton and other places and the deal teams and the way we ran these things in certainly Billiton and Extrata is very effective and that was limit the amount of time and effort you spend on internal process, make sure that you've got a smaller high-functioning team of individuals who are owners and are highly incentivized and very motivated and and utilize external expertise in a very surgical way when you need it for a particular, whether it's technical, commercial, tax, regional capability. And we've done that, I think, to quite good effect over the last seven years. It allows us to get the information we need to essentially make the best decisions we can in the face of uncertainty. And we always use that in coming up with underwritten cases. So hopefully that answers your question.

Thank you, and congratulations on all the progress.

Thanks, Sean.

There are no further questions. At this time, I will turn the call back over to Sean Esmar, CEO, for closing remarks.

Yeah, Bailey, thank you, and thanks, everyone, for the questions. I know that there's a number of participants as well who are having to try and do this on the flight today and site visits. I really appreciate the demands in this earnings period on people. Yeah, just by way of closing, look, it's been a great start. Most acquisitions, the MBA books will tell you, often don't achieve their sort of anticipated benefits, often due to poor integration. The team's done a great job on that. These are not complex businesses to integrate. I think you're really seeing the window outside of some of the accounting noise of why we went about this, and you're definitely seeing the benefits in terms of liquidity and and we've got some great new investors and names on the register as a consequence of this transaction. As I sit here today, it's pretty much our 7th anniversary though, and I look at the opportunities that lie ahead. I still don't see a firehose of new capital available from generalist forces for this sector. Everyone seems to have found religion more or less on the energy transition and other things. I just think there's a better opportunity going forward than we've seen to date, and I think there's a very exciting prospect for us to continue to deploy capital and really grow this business. So with that, just thank you all. Thanks to our shareholders, our stakeholders, and our mining partners, and a special thanks to my team. Thank you.

This concludes today's conference call. You may now disconnect.

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