Triple Flag Precious Metals Corp. Common Shares

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the triple flag Q3 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, press star one again. Thank you. I would now like to turn the call over to Sean Usmar, CEO. Please go ahead.

Thank you and good morning everyone and thank you for joining us to discuss Triple Flag's third quarter 2023 results. Today I'm joined by our CFO, Sheldon Vanderkooy, and our Senior Vice President of Corporate Development, James Dendle. Our business continues its strong performance during the third quarter with sales of 25,629 gold equivalent ounces resulting in 37 million US dollars of operating cash flow. Our portfolio is performing well with many assets experiencing positive catalysts during the quarter such as the high gold grade open pit E31 and E31 North deposits at North Parks continuing to progress down the development track and we'll start contributing to Triple Flag's GEOs in 2024. Expiration progressing at Cerro Lindo and resource expansion at Beredica. Additionally, our earlier stage exploration assets continue to advance, highlighted by Hove Bay, Delamar, Tamarack and Kone. In addition, we acquired an additional 2.65% NSR royalty on the producing Stahl mine in Australia for $16.6 million. Continuing our solid pace of accretive transactions following the Agbar royalty acquisition in Q2, including the Mavericks transaction which we closed earlier this year, this brings the total value of transactions closed during 2023 to nearly $700 million. Just after quarter end, our commitment to sustainability was showcased through our Improved Sustainalytics ESG rating, which now places us third out of 117 companies in the global precious metals sector. We're proud to exemplify the values of sustainability that helped shape this business, and I appreciate the work of our team to get to this point. I'll now turn it over to Sheldon to discuss our financials for Q3 2023.

Thank you, Sean. We had a strong third quarter, realizing sales of over 25,600 gold equivalent ounces. We are comfortably on track to achieve our 2023 guidance. Our Q3 GEOs in turn resulted in strong revenues, adjusted EBITDA, and operating cash flow in the quarter. We also recognize an impairment charge in the quarter due predominantly to the Renard diamond mine being placed on care and maintenance. The diamond market has weakened significantly this past year, and the difficulties of the sector are well known. This is a non-cash charge. We do not have any further exposure to Renard in our statements going forward. Our operating cash flow of nearly $37 million resulted in operating cash flow per share of $0.18, an increase compared to the same period in 2022. Year-to-date, our portfolio generated a robust $116 million of operating cash flow to be used for dividends, debt repayment, shareholder returns, and external growth opportunities. Our quarterly dividend has been maintained at $0.525 per share or $0.21 per share on an annualized basis. I'd also like to comment on our strong balance sheet, which is increasingly important in today's high interest rate environment. We finished the quarter with $65 million in debt and just $50 million of debt net of cash. This represents just four months of cash flows at current run rates. Subsequent to quarter end, we repaid $8 million of debt, further strengthening our balance sheet. Lastly, our asset margins for the quarter remain strong at 90%. High asset margins are a key feature of the streaming and royalty model and help ensure robust cash flow generation. I'll now turn to slide six. Slide six highlights three very important aspects of our portfolio, namely asset diversification, precious metals focus, and a portfolio which is predominantly centered in the Americas and Australia. Our revenue is well diversified across our portfolio. Cerro Lindo and North Parks are our biggest contributors to the quarter. representing 21% and 15% of quarterly revenues respectively. We are strongly precious metals focused. Gold and silver accounted for roughly 96% of our revenues amongst the highest in the sector. Our portfolio is predominantly located in mining friendly jurisdictions. By geography, the country with the single greatest contribution is Australia. Our Australian producing assets include North Parks, Fosterville and Beta Hunt. as well as a number of smaller contributors, including Stahl. With our recent increase of the Stahl royalty, I am very pleased that we have increased our exposure to a low-risk jurisdiction. I'll now turn to James, who will speak to our asset highlights.

Thanks Sheldon. There were a number of important advances made across the portfolio during the third quarter. Northparks has commenced mining the E31 open pits, which host higher gold grades. and we expect to see E31 pit ore process later this year, which will drive GEO's growth in 2024. Camino Rho had a strong performance during the quarter in the first half of the year, with Orla increasing 2023 production guidance to between 110,000 to 120,000 ounces of gold from 100,000 to 110,000 ounces previously. At Delamar, a successful drilling program increased heat bleachable ounces in the measured and indicated categories by approximately 25% and in the third category by 31%. Cerro Lindo had a strong quarter after renewed access to the high-grade areas that was restricted during heavy rainfall from Cyclone Yaku earlier this year, in addition to an ongoing exploration program. At Peritica, the operation continues to perform consistently. and Zijin have been able to grow the gold resource by approximately 700,000 ounces in the measured and indicated categories and approximately 570,000 ounces in the inferred categories over the last 12 months after production depletion, highlighting the significant prospectivity within this district. And finally, Agnico Eagle's exploration program at Hope Bay continued during the quarter with 119,000 meters literally completed in the first nine months of the year. Agnico is evaluating larger production scenarios at the project, which will directly benefit our royalty. Turning to the next page, as Sean previously mentioned, late in the quarter, we acquired an additional 2.65% NSR royalty on producing Stool Mine, operated by Stool Gold Mines for $16.6 million, bringing our total exposure to the mine to a 3.65% NSR royalty. Stahl is clearly an asset we know well and we're happy to increase our exposure to this well-run operation. Stahl is a predominantly underground mine located 250 kilometers northwest of Melbourne. The mine commenced production in 1981 and has a strong track record of production and a history of reserve replacement. A plant refurbishment was completed in 2019 and ongoing exploration expenditure and results have driven a significant increase to the resource inventory, placing the mine on a solid long-term footing. The store is expected to have at least a 10-year life of mine, with forecasted annual gold production ramping up to approximately 70,000 ounces per annum in the long term from around 50,000 ounces currently. Over to you, Sean.

James, thank you. As this snapshot demonstrates, Triple Flag is primed to build on our leading track record. And as Sheldon mentioned, I'm happy to say that we're on track to achieve our guidance range for 2023, which remains unchanged at 100,000 to 115,000 ounces. With an ample firepower of roughly $650 million in available liquidity, a broad base of 234 assets, and a five-year average annual production outlook of 140,000 gold equivalent ounces, We're excited to continue growing Triple Flag into a leader in the sector with our top sustainability ratings and prudent capital allocation decisions. With the board and management team being large shareholders ourselves, we're completely aligned in ensuring the best outcomes for all stakeholders and are looking forward to what 2024 has to offer. With that, Eric, please open the floor to any questions.

Thank you. At this time, I would like to remind everyone in order to ask a question, Press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Lawson with B of A Securities. Please go ahead.

Yeah, thank you very much, Operator, and good morning, gentlemen, Sean, Sheldon, and James. I just wanted to ask about the two write-downs. and kind of your thinking on potential lessons learned both Renaud and Renard and Beaufort, sorry. I mean, obviously they were very inexpensive investments relative to your overall investment, but I mean, is there something to glean from that that can be applied going forward to other assets or is this just a case of unfortunate market conditions and unknowable unknowns?

Listen, look, firstly, good morning. It's a good question. I think any organization with its weight is trying to look at the things that are within your control that you can learn from. If I go specifically to the Renault transaction, we were discussing this just with our board yesterday. There was a $200 million transaction done five, six years ago. Diamonds, as you know, are sort of non-core and we tried at the time to bifurcate a gold stream in particular from a diamond stream and it was sort of a package deal. And I suppose that at the time we rationalized it by saying it's a producing Canadian asset with strong support from Quebec and other institutions. I worked with a former friend and colleague of ours who had run Debswana, gave us some expert input into the due diligence at the time because it is outside of our ordinary sphere. and, you know, that all went quite well. And I think as we look with hindsight, you made the point, it's 234 assets. I think if you look at our overall percentage of write-downs on our net invested capital, we actually will be the best in the sector amongst any of our peers. But that's still cold comfort. You know, the things that, with hindsight, I think happened in that lesson, firstly, is the transition from open pit to underground, clearly their struggle, which impacted liquidity. and primarily it's been a story of difficult diamond conditions and inflation and if you think back you know we supported the business through a difficult period along with other investors that made cash and it was fine it prolonged optionality but in this environment that market has really got crushed in the last number of months which are you know we feel really bad for the teams that we try to support through this period so you know as Sheldon said there's no more investment in there the lessons learned for us primarily is you know This wasn't the thing we'd pursued in isolation. We only look outside of gold and silver by exception or base metals. We won't be rushing into any future diamond investments. And then the other one, you know, that was a small investment that we'd made. I'm not quite sure of Sheldon or James, just either that or general if you have any questions. I don't think there was anything necessarily diligence-wise we would have done differently.

Yeah, both four is, you know, it's a more recent investment we made. They just struggled with the ramp up and a bit of the grade issues there in that mine. And I think they're probably also, it's indicative of the struggles the junior mining sector has had on the equity front. And, you know, they've run to the process. We've taken the write down now. It's written down to zero on our books. This is behind us at this point. But, you know, and there's a press release that was out recently that IQ has made some motion to enforce some security. So we just thought it was prudent to put this behind us. But I think the real story there is the junior equity markets just aren't very open and more cash flow wasn't available to them from investors.

Tim, anything you'd want to add?

No, I mean, we acquired the initial interest as part of a larger portfolio acquisition, you know, and followed it on. when the mine looked like it was positioned to come into production. But Sheldon said, you know, they don't have the latitude to deal with the challenges they experience given the state of the markets.

And, you know, listen, I think I'd end by saying, you know, I think it is one of the situations we're finding, which is presenting opportunity and risk. And we're focusing, I'd say, more intensely as a consequence. It feels like the access to capital and the equity capital markets for the juniors and even intermediates is atrophied. And I think that presents really interesting opportunities Opportunities for our form of financing for ourselves and our peers, but it really means being extra vigilant in the event they run into any issues that they've got sufficient liquidity. So that's been a thematic for us all year, and we've passed up a number of interesting deals as a consequence. That's a big focus for us. Hopefully that gives you a bit of an answer, probably more than you bargained for.

It was, but a very, very helpful perspective. I mean, I appreciate that. I think it will help anybody listening on the call too. I also wanted to ask about Pumpkin Hollow and what your thinking is around that asset. I mean, I think if I look over the portfolio, I mean, it's probably the one other asset that would give me any sort of level of concern. The others seem to be doing very well or relatively well. Are you expecting production from that at all next year? And then, I mean, I think the plan is more for sort of 2025. And then what are your thoughts on potentially deploying more capital and what, you know, could be a potentially high return asset in the long term?

Yeah, so, I mean, you know, that story is, you've traveled the journey with us. You know, we had a, as we tend to have, we... funded five development stage assets with meaningful checks into production. That was one that, even with a conservative set of adjustments, has really struggled. I think, importantly, our form of financing has been very supportive and defensive. We supported that team through this. They've hit an important milestone now with getting the mill back on. They've got some work to do still, obviously, to ramp up ultimately to nameplate, which will take time. I think you remember at the start of the year, I think we were quite clear that assets like that, in general we handicap our numbers for all sorts of good reasons. We have assumed no answers for this year and we haven't put out public guidance yet on the year ahead. I think we are going to continue to maintain a sort of conservative posture. But I think the one thing that is sort of important to us, particularly in this environment where you've seen what's been happening in Central America and elsewhere recently. You know, copper is a commodity which remains sought after. Putting aside the ebbs and flows of shorter-term supply-demand, you know, it is an essential commodity for the energy transition. And, you know, US-based copper is just an intrinsically useful and valuable asset. So we remain very supportive of that. We'll continue to remain a sort of defensive posture on that investment. But I think we're also very well positioned in terms of where we rank and how we think about that. And we've got a lot of optionalities. It's not just the underground. We also have exposure to the open pit. Sheldon, James, anything you'd wish to add?

I think that covered it very well.

There you go. Lawson, Ed, do you want to ask us about our really good assets? Anyway, any other questions you wish to cover?

No, that covers it off, and I would just say I agree. I think you covered both questions extremely well. Thank you for that. I appreciate your thoughts.

No, no. No worries. Thanks so much.

Thank you. As a reminder, if anyone has any questions, please press star followed by the one. Your next question comes from the line of Carrie McGrury with Canaccord Genuity. Please go ahead.

Good morning guys, so maybe just to follow up on Renard to keep with the not great performing assets going, but just wondering if you can summarize your ownership position in Stornoway and is there any potential for any future liabilities to flow through to TriplePlag?

Hi Kerry, it's Sheldon. I'll answer this one. We hold a stream on Stornoway and we also hold a debt interest and we also hold a and a minority shareholding interest there of 13%. We've written everything down to nil, so we don't see any further exposure there and we don't see any further exposure coming up from the Stornoway level up to the triple flag level.

So no potential exposure to closure costs or anything like that?

No, I don't think reliable for any closure costs there. I know they have arrangements, they have bonding facilities and some cash reserves available at the Stornoway level, but that is actually, you know, We're a minority shareholder there and a stream holder and a debt holder. We don't see any exposure. That's helpful. Thanks, guys.

Thanks, Kerry. Thank you. Your next question comes from the line of Tanya Jakuskonik with Scotiabank. Please go ahead.

Good morning, everybody. Thank you for taking my question. I won't ask about diamonds even though I could talk about diamonds all day. I'll move on and just talk about just the M&A environment. I'm just interested in the comment you made, John, about just the challenges of the equity markets for the juniors. Should I read into this that you are looking at future deals having more involvement on the equity side and the debt side of financing these junior companies on top of the stream? or should I think of it in a different way?

Yeah, Tanya, firstly, it's good to hear from you. We, I think, have been consistent over nearly eight years now where when we started, we were told to compete. We had to actually write big equity checks and do a host of other things. And I think with the business we have today, we've really not done that. You heard on Renard, we've got a small position. We helped them during a period of distress. But those have always been small checks in the context of our primary business. And you can see that in our NAV. I mean, we're within spitting distance of 100% of just streams and royalties. And so we've achieved what we've achieved. And I don't see a reason, notwithstanding that we've seen some of our larger peers engage in doing that. I think it violates the model. And I also think that there are complementary and very capable pools of capital that we've shown in the past we've been able to work with quite successfully to arrive at sort of full funding solutions. So just this last week, I won't disclose the party, but we are receiving inbounds from groups that are interested. They see perhaps a generational opportunity on the resources space and they're looking for knowledgeable financing partners to work with. And we've been able to, I think, successfully compete in that way in the past. I think the largest equity checks we've ever written but in the context of much much larger overall checks for a transaction where perhaps our money is contingent on going in on a full funding solution and we act maybe as a cornerstone as something like 10 million dollars on a say 100 million dollar check or thereabouts and so you know I suppose what I'm saying is notwithstanding those difficulties I think what it means is we are we spend Probably more time looking at downside pricing scenarios and liquidity scenarios when we stress test our models. It's not just a blind IRR lens that we're applying. We never have. But it's more about that and risk to the portfolio. Unless we find religion, then we really see a much larger opportunity perhaps to write partly an equity check for a much larger financing. So hopefully that answers your question.

So I read from this that most of the transactions you're looking at would have a minimal component of equity within your overall size of your transaction.

It's been a really interesting year. We've touched on it previously where we've seen a return of cash generating streams coming onto our deal pipeline for the first time in a while. We've been very active on those, a number of site visits and the like. And we've chosen, as you've seen with some of these, these have been smaller transactions, high return relative to what we're seeing in the market, decent jurisdictions. But those have not been combined with equity checks. Those have been provided by other people. We've seen some very large ones where the reason in some cases we've walked away and we've chosen not even on exclusive transactions is because of overall leverage and too much risk to the capital. So, you know, I think that the ebbs and flows of the deal pipeline continue the way they always have. And we're seeing it. We still see a very active pipeline. I think at the moment, you know, we're seeing things that are high quality, don't involve an equity check, you know, still in the sort of low hundreds of millions of dollars. There are sort of more difficult things that are larger, which may or may not come to book either for ourselves or for the sector. perhaps a little bit later on. But yeah, I don't know. I'm not feeling like I'm under pressure for us to start building like a triple flag equity portfolio.

Okay, so a couple hundred million dollars sort of fill the range for the deal and mainly stream and or royalties without an equity component.

Yeah, and then the usual sort of trites of non-core stuff that's non-producing that's really, we'll only entertain by exception. It's not You know, it's got to be really interesting when you've got like 200 assets in that category already as a portfolio. Our focus is more on, you know, as I think it's always been, but particularly right now, it's more on things that are generating cash or where there's a very clear line of sight to that. So it served us well and we'll continue to focus on that.

Any opportunities to, as you did this recent transaction and increasing your exposure and other projects that you already have exposure to, like additional royalties. Do you see any of that within the portfolio?

James, do you want to comment?

Yeah, I think there's a number of opportunities, I think, where there's capacity to further increase our streams and royalties to provide additional capital for expansions and things like that. I won't go into specifics, but we're very keen to Thank you for joining us today. which provides, you know, it's a small deal, as you know, but it provides capital, you know, for an expansion of a new mining area that, you know, actually benefits our initial royalty whilst increasing our exposure to that asset. So, you know, it's a great example of a deal that, you know, we'd like to do, particularly on producing assets in good jurisdictions like school.

Okay, perfect. Great. Thank you very much.

Thanks. Thanks, Kenneth. Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the call back over to Sean Usmar for closing remarks. Please go ahead.

Thank you for your time. We try to keep us very focused. It's good to see you. Half an hour we've done that and covered off, I think, some very relevant questions for our business. This quarter has been, I think, another demonstration of quite steady performance, not just on the Precious Metals Corp. Precious Metals Corp. Precious Metals Ending the year well and coming out with our guidance for 24 and beyond. I think the business is in great shape. So thanks so much, everyone.

Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.