OR Royalties Inc.

Good morning, ladies and gentlemen, and welcome to the Osisko Gold Royalties Q4 and Year 2020 Results Conference Call. After the presentation, we will conduct a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. Please note that this call is being recorded today, February the 25th, 2021, at 10 a.m. Eastern Time. Today on the call, we have Mr. Sandeep Singh, President and Chief Executive Officer, and Mr. Frédéric Ruel, Chief Financial Officer and Vice President, Finance. I would now like to turn the meeting over to your host for today's call, Mr. Sandeep Singh. Bonjour, Mesdames et Messieurs, et bienvenue à l'appel conférence des résultats du quatrième trimestre et de l'année 2020 de redevances orifères au Cisco limité. Après la présentation, nous procéderons à une séance de questions et réponses. Si vous désirez poser une question, veuillez appuyer sur la touche étoile suivie du numéro 1. Veuillez prendre note que cet appel est enregistré aujourd'hui le 25 février 2021 à 10 h, heure de l'Est. Nous avons sur l'appel aujourd'hui M. Sandeep Singh, président et chef de la direction, et M. Frédéric Ruel, chef de la direction financière et vice-président finance. I would now like to hand over to your host, Mr. Sandeep Singh.

Thank you, operator. Good morning, everyone. Bonjour à tous et merci pour l'intérêt dans notre conférence téléphonique ce matin. Thank you for taking the time for an update on our Q4 and 2020 full-year results. Je suis Sandeep Singh, président et chef de la direction. Je suis accompagné de So Fred and I will walk you through the results this morning, and then Sean will also be available during the Q&A. The presentation I'm following is on our website, so please, if you haven't already, you can pick it up there, and I'll do my best to refer to page numbers as I'm going through it, starting with The forward-looking statements on slide two, please be mindful that we will be making forward-looking remarks. On slide three, just kicking into the highlights for the year, I would say to start off with, you know, despite the obvious challenges with respect to COVID this year, for us and more importantly for our operating partners, we ended up having a very strong year. earning just over 66,000 ounces for the year above our revised guidance, taking into account the shutdowns that we experienced in Q2. And end of the year, kind of back where we started in terms of a run rate with all our assets now chugging along at their full capacity, we believe. That led to record cash flows, obviously, and revenues buoyed by the fact that the decreased production for the year was compensated by higher gold prices, and we look forward to higher gold and silver prices. We look forward to a continued positive outlook from a gold and silver perspective going forward. Our margins stayed high at 94%, the highest in our peer group, by virtue of having more royalties in the streams, more free ounces than cheap ounces, if you will. and generated a significant amount of adjusted earnings over the course of the year, 27 cents a share on a basic share basis. And Fred will walk you through some of the more detail around that. I think worth pointing out, For the quarter, a lot of what you're seeing, and I think many of the analysts who cover us have already picked up on this, is some slight bit of noise due to the Cisco development spin-out transaction that concluded in Q4 and a little bit of the consolidation around that. But when you take into account some of those one-time items, many of which were non-existent, uh, cash oriented or also, uh, disproportionately picked up by Cisco development. Um, you know, we get to a point where we're quite happy with the quarter that we're coming out of today. And again, Fred, we'll, we'll go through that in a little bit more detail. Uh, we did acquire, uh, buy back some, some shares, uh, at the worst of COVID. Uh, so we did buy back some very cheap stock during the year for a total of about just under $4 million. And we declared a quarterly dividend, something up to 20 cents a share, uh, Still the highest yield in our peer group and something that's very important to us as we go forward. With no disrespect to the accountants among us, I think more importantly than any of the noise in the financials is the fact that the business is in excellent shape as we end 2020 and as we start 2021. Our producing assets are outperforming almost without exception. Our development assets are advancing steadily Our exploration or early stage development assets as well are delivering several positive surprises. And we expect that to continue to happen as more and more exploration dollars are being spent in the sector after several years of restrained spending on that side. We expect that catch up to benefit our portfolio quite disproportionately. And then again, Q4 marked the end of The last quarter of our spend on Barkerville, our direct spend on Barkerville, that was a finite period of time. It lasted between the North Spirit transaction to the Cisco development spin out the year and certainly created a lot of value in the process. Skipping over to slide four to finish that thought, 2020 was an important strategic year for us. The culmination of that North Spirit transaction into a Cisco development within the span of roughly a year. And again, as I said, creating a significant amount of value that we now look forward to getting the credit and value for. Since that's been out, Sean, Cisco development has raised circa $250 million in to unlock a significant amount of value in that asset base for the benefit of Cisco development, but also the benefit of OR. And we look forward to that process continuing as that public company has really just gotten on its feet here at the start of the year. In that process, we also acquired, as you all already know, the San Antonio Gold Project or the stream on the San Antonio Gold Project in Mexico. From my perspective, that's the cheapest $9,000-ish out stream I've seen anyone collect anywhere. Obviously, that asset needs to go through permitting in Mexico, and the team is pushing that forward substantially at Asisco Development. But what we see there on our stream is the upside potential. Cisco development has already acquired a crushing circuit that can run about 15,000 times per day. If you start to talk about those types of run rates or anything close to it, it's a substantially higher stream than what we've been talking about. So we look forward to that coming into the midterm of our pipeline. Also throughout the year, we did some other things that we think added significant value. We improved the silver stream on Gibraltar. At the right time, that mine continues to now benefit from significantly higher copper prices. So we're happy with our added exposure to Gibraltar. We also acquired an additional 15% of a royalty package that we already owned, predominantly on the Island Gold and Lamac mines. So adding to our royalties in those two mines, I think it's safe to say was good timing as both of those are now going through some pretty important exploration and expansion phases. We also announced the strategic partnership with Regulus, whereby we added a significant royalty that paid for that transaction off the bat on what is a large asset today, one that's only getting bigger, and ultimately we think a large company asset in a pretty important copper price environment, and also gained exposure to additional royalties that they may buy back with. And as you all know, concluded the financing with the nuts and muck back in April. It was done at a premium during the worst of COVID, so strong endorsement from our partners there. If you move to slide five, just a recap of the producing asset base. Again, I'll reemphasize that it's doing extremely well. Some of you cover, on the analyst side, I'm sure some of you cover these other names. You've been picking up on the positives that have been coming out of their Q4 disclosure, their resource update. Some of that's already come out. Others yet to report. But almost across the spectrum, we're seeing good news, starting with, obviously, on our flagship assets, Canadian and Arctic, where that line has gone from open pit toward the end of this this decade to now talking about production 2039 plus. So we look forward to our flagship assets being our flagship assets for decades to come. And I'll pick up on some other positive advancements a little bit later in the document. And then you see a split of our production for 2020 by commodity as well. We are gold and silver dominated. That's a core part of our of our portfolio and for anybody that has a Reddit blog, feel free to point out the level of silver contribution that we add of about 24% within the company in 2020. On slide six, just a little bit more on where we've come from and I guess where we're going. You'll notice the production annuals for 2019, 2020, and then our guidance of 2021, you know, ranging between 78 and 82,000 ounces, so midpoint of 80. And again, still expected to be the highest cash margin in the business when you exclude the offtakes. I think it's worth pointing out, though, it might feel like that's getting back to 2019 levels, but I would remind everyone that our 2019 production included a significant amount of Bruce Jack contribution That stream and offtake was bought back. We got paid for it, but it did take down our production levels. It also included Renard, which we're now intentionally keeping off to the side until we can fully benefit from those cash flows. So taking that into account, in 2020, we're back at the same level of production. with those ounces gone and with many of our mines shut down. And now we look forward to kind of a 20% increase, whether you look at 2019 or 2020 off the same asset base. So a fair bit of growth to compensate for those other factors. And then more importantly, as you look to the right, some significant assets that are in our pipeline that are maturing, coming along at a pretty steady pace. I would say all, maybe with one exception here, moving forward steadily. And we look forward to this paid for growth coming into the company, especially at a time when new transactions in the sector on the royalty and streaming side have gotten, I think it's fair to say, more expensive and as a result, a little bit riskier. We look forward to this paid for pipeline starting to deliver for us. In the guidance numbers for 2021, You know, I think we made the point in the press release that Mantis has gotten deferred a little bit. We're talking about a few month delays. When you take into account COVID, I think that's frankly pretty de minimis. So it doesn't bother me in the least that that Mantis expansion has been pushed into 2022 as opposed to catching some of 2021. I think the important news is all of this is still in front of us and all of it's still progressing quite well. With that said, I will pass it off to Fred on slide seven to walk you through some of the more detailed aspects of the quarter, and then I'll pick back up thereafter. So, Fred.

Thank you, Sandy. Bonjour a tous. Good morning, everyone. Thank you for joining us today. As you know, busy year for Cisco with COVID, where some operators shut down or reduced their operations, mostly last spring, and of course, the completion of the RTO transaction in November, creating a Cisco development who raised over $250 million in the last month. We earned 18,829 GOs in Q4, excluding, as Sandeep explained, the GOs earned from the Renaud Diamond Stream in Q4, for a total in 2020 of over 66,000 GOs, exceeding our revised forecast. In Q4, we generated record quarterly revenues of $48.8 million from royalties and streams, operating cash flows of $39 million, and an operating cash margin on our royalties and streams of 94%. An amount of $15 million was also repaid in Q4 in the credit facility. As presented under slide 7 of the presentation, we recorded record revenues from royalties and streams of over 156 million last year compared to 140 million in 2019. Cash flows from operating activities reach a record 108 million compared to 92 million in 2019. If we go on page eight, we have a summary of our earnings and adjusted earnings. Net income was 16.9 million or 10 cents per share compared to a net loss of 234 million in 2019. The loss in 2019 was due to significant impairment charges. Adjusted earnings were 43.7 million or 27 cents per share compared to 41.9 million in 2019. On slide nine, we present our quarterly and annual results. GEOs from gold and silver production were higher in Q4 as all mines have returned to their pre-COVID level. GOs from diamonds have decreased. As I said, we have excluded the GOs from the Renault stream starting in Q4. Revenues increased in Q4 from $51 million in 2019 to $64.6 million in 2020. And you'll note a decrease in our annual revenues, but this was due to the sale of the Bruce Jackoff stake in September of 2019, which was partially offset by a higher realized price on gold and silver. Our average gold price per ounce sold amounted to $2,444 Canadian in Q4 2020 and $2,273 for the year, a significant increase over 2019. Gross profit for the fourth quarter increased to $32.8 million, up from $23.9 million in Q4 2019. For the year, our gross profit was $104 million, up from $83 million in 2019. Our net cash flows from operating activities reached $32.6 million in the fourth quarter of 2020 for a record $108 million for the whole year, up 18% compared to the previous year. Our adjusted earnings in Q4 amounted to $12 million, or $0.07 per share, reflecting a tax expense of 5.8 million Canadian or US 4.5 million on the acquisition of the San Antonio stream. This tax expense will be paid by a Cisco development in Q1 of this year, but is of course included in our consolidated results for 2020. Excluding this one-time tax expense, adjusted earnings would have been 17.8 million or 11 cents per share. I'd like to remind also that additional expenses of approximately $4 million related to the RTO transaction are included in our operating expenses in 2020, including a non-cash listing fee of $1.8 million. These expenses were shared between a Cisco Gold Royalties and a Cisco Development, but are all included in our consolidated results. These expenses were, of course, one-time items. If we go on page 10 of the presentation, we present a breakdown of our cash margin for Q4 and the whole year. The cash margin on our royalties increase in Q4 to reach $34.3 million compared to $26.3 million the previous year. For 2020, the cash margin on royalties reached $111 million, an increase of $14 million compared to 2019. The cash margin on our streams amounted to $11.3 million in Q4 and $36.3 million for the year, up from $9.1 million and $29.5 million respectively in 2019, resulting in a cash margin on our royalties and streams of 93.5% in Q4 and 93.9% for the whole year 2020. Our total cash margin reached $46.3 million in the fourth quarter, 10.6 million higher than the previous year. For 2020, our total cash margin reached 150 million, an increase of 20 million. And finally, if we go to slide 11, you will find a summary of our financial position. Our consolidated cash balance was 303 million at the end of the year. including $105 million for Cisco Go Royalties and $197 million for Cisco Development. Cisco Go Royalties held investments having a value of $216 million at the end of December, in addition to our investment in Cisco Development, valued at over $750 million, for a total of $1 billion in value. Our debt amounted to $400 million on December 31st, we have repaid an amount of 15 million U.S. in Q4 under our revolving credit facility. In Q1 of this year, we have also repaid our $50 million debenture with Agostina Quebec using our credit facility, therefore reducing our interest payable by approximately 1.5% on that debt. including the accordion available, our available credit on the facility is over $385 million as of today. Back to you, Sandy.