Altius Minerals Corporation

Good morning, ladies and gentlemen, and welcome to Altius Minerals Q1 2023 financial results. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, May 9, 2023. I would now like to turn the conference over to Flora Wood. Please go ahead.

Thank you, JP. Good morning, everyone, and welcome to our Q1 conference call. We've spoken to a few of you this morning, and I understand it's a really busy morning. Our press release and interim filings came out yesterday after the close and are available on our website. This event is being webcast live, and you'll be able to access or replay the call along with the presentation slides on the website at altiusminerals.com. Brian Dalton, CEO, and Ben Lewis, CFO, are both speakers on the call. And when we open it up for questions, I also have Stephanie Hussey, VP Finance, here in the room for the Q&A. The forward-looking statement on slide two applies to everything we say, both in our formal remarks and during the Q&A. And with that, I'll turn over to Ben to take us through the numbers.

Thank you, Flora. Good morning, everyone, and thank you for joining us. The revenue for Q1 2023 was 21.4 million, or 45 cents per share, down 16% compared to Q1 of last year. The decrease was attributable to lower commodity prices and the closure of the 777 mine in the second quarter of 2022. Relative revenue for the quarter also reflects potash price reconciliation adjustments of $2.2 million, which relate to 2022 sales and compares to similar adjustments of $0.9 million that were recorded in the first quarter of 2022 related to 2021 sales. Our overall EBITDA margin of 79% is down from 83% during Q1 2022. while the mineral royalties EBITDA margin was 86% for both years. Adjusted EBITDA of $19.1 million or $0.40 per share decreased by 19% in relation to Q1 2022 and follows the trend of revenue. Q1 2023 adjusted operating cash flow of $4.5 million or $0.09 per share compares to $14.2 million or $0.35 per share in last year's comparable quarter. The decrease period over period is largely reflective of higher cash taxes and interest paid as well as lower royalty revenues. Foreign withholding taxes of $903,000 were paid to Chilean tax authorities during the quarter as well in relation to a distribution of funds received in 2022. Net earnings of 5.5 million or 11 cents per share compares to net earnings of 12.5 million or 29 cents per share in Q1 2022. Per share differences across all metrics include the impact of common share issuances related to the April 2022 exercise of 6.7 million share purchase warrants by affiliates of Fairfax Financial. Adjusted net earnings of $0.07 per share for the quarter decreased relative to the $0.21 per share during Q1 2022. The main adjusting items in the first quarter of this year are $2.8 million in non-recurring income relating to the liquidation of assets of Alderaan Iron Ore Corporation, as well as the write-down of mineral properties. There are other adjustments for unrealized losses on derivatives, foreign exchange, and gains on disposal of mineral properties. We continue to see revenue growth at ARR through its 50% owned GBR joint venture. Four additional projects were acquired or achieved commercial operations in late 2022, providing royalty revenue for the first quarter. and several additional projects are progressing through development and construction. At the underlying GBR joint venture, revenue of U.S. $2.0 million was recognized, and GBR reiterated its guidance of $11.5 to $13.5 million, those numbers are U.S. as well, for 2023. First quarter revenue was in line with GBR's expectations given the mild winter weather and low natural gas prices which drive the overall realized prices. Brian will speak more on the strong progress that ARR is making and I further encourage you to review its recently published annual and quarterly findings and the investor conference call remarks. Now to the balance sheet and then capital allocation. Lithium Royalty Corp or LRC of which Altius is a co-founding shareholder completed its IPO during the quarter, raising $150 million. Altius indirectly holds approximately 9.5% of LRC and expects to receive a combination of cash and LRC share distributions over the next 24 months, as described in their perspectives. At the end of the quarter, the corporation recognized unrealized gains of $56 million related to its holdings, of LRC. In addition to its indirect equity position, Altius holds minority interest in three lithium royalties that it co-acquired with LRC during its pre-IPO phase. One of these royalties commenced production in April 2023, while the other two are expected to reach commercial operations later this year or early in 2024. This will add three new operating stage mines to the corporation's portfolio, and will introduce the first-ever royalty revenue related to lithium production. We repaid $2 million in scheduled debt repayments on our term debt during the quarter, paid cash dividends of $3.6 million, or $0.08 per share, to common shareholders, and issued 9,613 common shares valued at roughly $200,000 under the corporation's dividend reinvestment plan. The board of directors approved an eight cent dividend that will be paid to shareholders of record on June 15th with a payment date of June 30th. There was no activity under the normal course issuer bid during Q1. Our current liquidity consists of 11 million in cash at the end of Q1. and we have 93 million in unused revolver room. ARR at quarter end held cash of US 48 million after funding a small investment in a renewable royalty investment via GBR. And with that, I'll turn it over to Brian to talk about the environment and the outlook.

Thank you, Ben. Thank you, everyone, for being here. Hello from Cambridge University, where we are being graciously hosted by Director Anna El-Erian for this quarter's board meeting. Hopefully, the setting is bestowing some wisdom on us as we work to navigate the shifting sands of our industry. In saying that, I am thinking about the following circumstances and the realization that all of these are occurring at the same time. Sticky general inflation and even higher industry-specific cost inflations simultaneously falling inventories and prices, deglobalization and supply chain reconfigurations, an M&A surge while greenfields development is still a dirty phrase, decarbonization and electrification trends somehow holding up against all of these other pressures. These are interesting times indeed. Next week we will be hosting our Investor Day, so briefer update type remarks from me today than usual. A lot of growth signals have been coming in from across our portfolio lately. These relate to existing cash-flowing royalties as well as potential new developments and discoveries. The confluence of this type of news in a single quarter is unprecedented in our more than 25 years. In our press release last night, we listed the following quarterly highlights that all speak to the future growth of our business. Capacity expansion investment projects continued at the Potash Royalty Mines. Lithium Royalty Corporation completed a successful IPO last that daylighted significant value creation for Altia shareholders, while LRC also continues to steadily ramp up its asset advancement progress. The first directly held lithium royalty interest reached production subsequent to quarter-end. A maiden resource was published for the high-grade Tauva discovery at Chapada, while mineralization was noted to remain open in most directions, and with Tauva now being considered as part of district-level expansion studies by Lundeen. ARR continued its strong ramp-up of operational asset counts and revenues, while its opportunity set for new investments continued to accelerate. Higher levels of growth and sustainability investment continued at the Rio Tinto-controlled IOC iron ore mine, with obvious positive implications for future reliability and production levels. Preliminary results from CAMI metallurgical studies indicated potential for production of high-purity or DRI pellet-feed iron ore concentrate grades. Resource increases were announced for the emerging Silicon Gold District in Nevada, and strong ongoing exploration potential has been signaled by operator Anglo Gold Ashanti. Approximately 300 kilometers of exploration drilling programs are now expected to be completed across our broader portfolio in 2023, which speaks to tremendous long-term optionality. Each of these topics will be explored further next week at the investor date. but allow me a little bit of a tease of the results and the conclusions that we will present. The work has mainly involved us trying to wrap our heads around the current value and future option value embedded in our portfolio, and then the implications for our thinking around capital structure and capital allocation. It is obviously pretty hard to get that stuff right without a solid view of where we stand in terms of the underlying value of our business. Early in the quarter, someone outlined her thoughts to us on a potential M&A opportunity. The crux of the argument in favor was math that indicated that Altius traded at a premium to its net asset value, while the proposed target portfolio was supposedly being valued at a discount to net asset value. The problem we ran up against was that when we stacked assets versus assets using a more subjective lens, it felt obvious that Altius' side of the ledger represented far more tangible long-term value. This contradiction with the map we were presented with caused us to wonder what the root of the disconnect between conventional net asset value analysis, or NAV analysis, and our more intuitive sense of value was. Our conclusion, after a lot of analysis and debate, was that NAV models work just fine, but that the model inputs that are in conventional use and that essentially drive consensus industry asset values have become stale and overstandardized. This is particularly true when one distinguishes for asset quality and duration, and also for the nature of the interest, for example, operating versus royalty interest. To demonstrate this, we will provide some backwards-looking analysis next week that will probably be quite surprising to many shareholders. We will then extrapolate the learnings into a series of forward-looking valuation scenarios for our particular assets. Without giving too much away, let's simply say for now that we do not agree with the consensus that Altius trades at a premium to its NAV. We look forward to seeing you next week. Thank you, and we'll take any questions.

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star, followed by the number one on your touchtone phone. You will hear a one-tone prompt acknowledging your request. One moment, please, for your first question. Your first question comes from the line of John Tumazos from Very Independent Research. Your line is now open.

Thank you and congratulations on all the different progress. Could you review the status of the operating license of the coal mine where you have the $3 million revenue flow in the quarter? Is there any chance that that license could get extended or renewed? And does Audeus have any appetite for thermal coal investments or more assets? And where I'm coming from is in the last year, some regions, not Canada, but other regions have had hydroelectric output declines. And in some parts of the world, there's long delays to permit wind towers, etc., So I'm concerned that some of the renewable energy supplies might be less than expected and the coal could be needed to support the power grid.

Thanks for the question, John. First off, on the existing coal revenue which comes from the Genesee mine and power plant in Alberta, It's not that the license is expiring. In fact, from a regulatory point of view, it technically can run until about late 2029, I believe. But what we're tracking really is progress that the current operator of power plant is making in converting the plant from coal-fired to natural gas-fired. So the latest update we have is that that's scheduled. to wrap up later this year and that they expect to stop burning coal by then. So that really, when we talk in our materials about expecting this year to be the end, it's not a firm regulatory point at this stage. It's more just tracking capital investment progress and commissioning of the refurbishment of the plant. As for appetite for further investment, In coal, thermal coal in particular, I'd say the short answer is no. I definitely take your point, and I believe that as this energy transition proceeds, it's not going to be overnight. It's not going to be overnight, and coal, I'm sure, has a role to play for quite some time. But when we think about investments, we're obviously thinking in terms of 20-, 50-, 100-year kind of timeframes. Our efforts are pretty decidedly directed now towards longer-term, perpetual resource life renewable projects. Our day with coal is done. I'm happy to say that the way we've gone about it is probably a little different than most. We didn't just divest and pass the buck, but we've reinvested whatever coal revenues we've received since we made the decision and have now successfully built a renewable business that I'm absolutely certain will eclipse anything we've ever done on the coal side of things. No, it's not for us. I expect there's a private market appetite for coal assets going forward, but for a whole host of reasons, including cost of capital and just longer-term expectations about the future, it's not in our future at all.

So there is a remote possibility if the thermal coal price is high enough next year that your operator could afford to pay the rail freight and the ocean freight and ship it to Asia?

Technically, it's not being talked about, and that would go beyond the Genesee plant because we have other coal mine or coal interests that have already converted the gas, but the mines and the coal obviously still sits there. But that's completely out of our hands, right? We haven't heard any whispers or indications in that regard, but in this crazy world, who knows?

If you want to take the next question.

Your next question comes from the line of Craig Hutchison from TD Securities. Your line is now open.

Hi, good morning, guys. Hey, Craig. Good afternoon, actually. Good afternoon for you guys, yeah. A question on the LRC business, and this may be a bit complicated, but just you do mention that you expect to receive some combination of cash and shares in the next 24 months. If you can just maybe kind of give us a broad explanation of how that would work. And then maybe a second question, just any kind of broad estimates in terms of what you guys would expect on a go-for basis with respect to the revenues from the co-participation would be appreciated. Thanks.

Yeah, so you've got to go back to the formation or how our investment worked. So what we did was we joined a limited partnership ultimately that resulted in the creation of LRC. So our ownership is in the LP, which then in turn is basically invested to create LRC. So that distribution really is LP-based distribution. So we say we'll receive shares. Really what will happen is they'll be directly released from the limited partnership to the unit holders. And similarly on the cash side, there were other assets in that limited partnership, namely equities that were acquired that weren't part of the LRC IPO. So if those are liquidated or even distributed, we'd receive our share of that. And then further, there was a note structuring done pre the IPO of LRC that was repaid from the proceeds of the IPO. So that... I can say that we've already received some of those proceeds subsequent to the quarter end, but I won't get into the actual quantum at this point. We're still working out the details. As far as the expected revenue from the directly held royalties, pick your lithium price, quite frankly. Obviously, there's a lot of volatility there, but I guess the last time we looked at it, maybe a month or so ago, we're looking at something at current prices in the magnitude of $2 million, maybe as much as $3 million. But in each case, there's pretty strong signaling around significant output expansion. So that would be on a base case, current plant production level sort of outlook. Perfect. Thanks for the call. Thank you, sir.

As a reminder, if you have any questions, please press star 1. There are no further questions at this time. I will now hand over to Flora Wood. Please continue.

Okay. Thank you, JP. Thanks, Craig, for the questions. And we'll look forward to speaking with everybody. Well, a lot of you, hopefully, at our Investor Day. And for anybody who is looking to access that remotely, we'll have a conference call webcast. So just reach out to us and look forward to speaking with you in a week.

Thank you.

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