OR Royalties Inc.

Good morning, ladies and gentlemen, and welcome to the ASISCO Gold Royalties Q2 2021 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 today's conference is being recorded. Today, August 10th, 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 our host for today's call, Mr. Sandeep Singh. Bonjour, Mesdames et Messieurs, et bienvenue à la conférence des résultats du deuxième trimestre de l'année 2021 de Redevance Orifère au Cisco Immunité. Après la présentation, nous profiterons 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 10 août 2021 à 10 heures de l'heure de l'heure. Nous avons sur l'appel d'aujourd'hui Monsieur Sandy Singh, Président et Chef de la Direction, et Monsieur Frédéric Cruelle, Chef de la Direction Financière et Vice-Président Finances. J'aimerais maintenant céder la parole à votre hôte, Monsieur Sandy Singh.

Great, thanks very much, operator, and thanks to everyone for joining us on our Q2 conference call. This is Sandeep Singh speaking. Please note that I'm working off an IR deck that's on our website, so you can pick it up under the presentation section. And also, please note that I'll be making forward-looking statements, or we will be making forward-looking statements today, so please be mindful of that. Switching over to slide three, entitled Q2 Highlights, First and foremost, a very strong quarter for us. Another in a row, frankly, the assets continue to perform exceptionally well, the producing assets. And we look forward to a strong second half of the year as well, as we do not expect that theme to change for us. In fact, hopefully the opposite. So our core assets continue to strengthen. So really good quarter. Very happy with it. We earned, as you all know, just over 20,000 ounces of geos, gold-equivalent ounces, for the quarter. That sets us up really nicely at just above 40,000 geos for the past year. You'll all know that our guidance for the year remains unchanged for the time being at 78,000 to 82,000 ounces, so striving forward. Right at the midpoint for the time being, and as you've heard me say, most of you I'm sure, we do expect a strong second half as we have at least one core asset ramping up, which is the Eagle Mine I'll talk about later, and at least one other small asset that will kick into production and start to contribute as well. So well set up in the first half of the year, looking forward to the second half. Also in Q2, record revenues and cash flows from the royalties streaming business. So again, good ounce deliveries coming alongside strong commodity prices. We had the same type of cash margin that you expect from us, so 94%, 97% to exclude the Bernard ounces. so akin to last quarter, and a consolidated net loss, obviously, of $15 million. Some of you may have listened to the Cisco Development Conference call just preceding ours, but that impairment has to do with Nazil Edge Phase 2, which is a satellite project at the Caribou site, and I'll get into that asset a little bit later, but important to note that really that's a bit of a secondary cleanup exercise of some old Waste material, a little bit of added benefit from a training perspective, and some cash flow expected, but it's not the main meal there. Adjusted earnings for the royalty and streaming business of $24 million, almost Canadian, or $0.14 a share. We paid our dividend for last quarter of $0.05 a share. Importantly, we bumped it up a little bit by 10% going forward to $0.055 a quarter or $0.22 annualized. For the next time around. And I think worth pointing out that despite pretty significant volatility, especially in the last several trading sessions, the strength of our business, the high margin nature of our business and our confidence in it is what allows us to increase an already peer leading dividend. We also published our inaugural ESG report in the quarter. We announced the commitment to join the UN Global Compact. So again, advancing our initiatives to be a leader in the ESG space. We've always done things in that regard. If you look at our asset base, you'll know that, you know, you can see that it was probably, you know, in some ways built with ESG in mind, which it was, even though it didn't used to be called ESG. And we're catching up on the disclosure side of things. And then on the right-hand side here, also worth pointing out that we updated and expanded our revolving credit facility. So we thank our lending partners for their continued support. On that front, we're able to add $150 million to that credit facility. The drawn amounts, important to point out, also have not changed. Just increased the facility, reduced the overall cost of it. So the pricing grid and portions of the grid has come down and given ourselves greater flexibility going forward. Happy to get that behind us as well. So that's just a quick snapshot. Again, moving to slide four, just one more time on the dividend, I guess. Important to note that this company has been paying a dividend since its IPO, since day one, essentially. We've returned significant capital to shareholders over those seven, eight years now. By the end of this year, if the dividend remained at current levels, it would be $184 million in dividends alone to shareholders by way of return of capital. It had been set up at $0.05 a share for some time, but obviously with the gold price or commodity price move, our upcoming growth in geos, we felt it was a good time, even with that volatility I mentioned, to increase a little bit and then watch as things go going forward. On slide five here, I'll just update you on a few small transactions for us that you would have already seen, but maybe some of them we haven't talked about. Overall, I think it's worth mentioning that we've stayed true to what you've been hearing from us, which has been discipline. As of early last year, I think we saw a market that we didn't particularly like, certainly felt like a bit of a seller's market. The combination of asset quality and prices being paid did not make sense to us. We've still been able to find good value for real assets on some of these smaller transactions. And importantly, going forward, I think that dynamic is starting to improve, frankly. Gold price volatility up and down will do that for you. Last year is all pretty much straight up from the first half of the year. Um, and we're starting to see some, some better opportunities that fit our pipeline that we'd like. So we'll continue to be active, uh, looking for those in terms of things that we have, uh, closed on, uh, you know, in April was the spring Valley acquisition, which we quite liked. That was an increase mainly on the spring Valley asset and Nevada going from a half a percent NSR that we already had to between two and a half and 3% multimillion ounce deposit owned in private equity hand. But we think that's one of the better, uh, acquisition opportunities in the sector and happy to have a significant royalty on a significant good grade resource in Nevada. We also, in April, converted our Peral offtake into an equivalent stream. So a bit of a cleanup transaction on that front to help our accounting going forward and good and positive for both us and the operator there. And then on slide six, the most recent one, which we haven't had a chance to talk about, would be the acquisition of an NSR on the Tocantinsinho project. Excuse me, it's still a mouthful. We call it TZ, as I suspect most people will. We acquired a 2.75% royalty there for $10 million U.S., But important to note that there is a buyback there with proceeds going to previous operators. So we do expect at the end of the day that we'll get exercise. So what we paid for is a 0.75% NSR for $10 million U.S., a significant asset in Brazil. And obviously most people know it. It's been non-core to Eldorado almost since they bought it as their attention drifted elsewhere within their portfolio almost immediately post-purchase. But a real asset, 2 million ounces in M&I, 1.8 million ounces of reserves at a good grade. It's permitted and construction-ready, importantly, in Paris, state of Brazil, where there's a long legacy of mining. And so what was lacking there, what we saw was a good asset that deserved building. What was lacking was the operator willing to do it. So we're quite happy to see that just yesterday, G Mining Ventures has acquired the asset or is in the process of acquiring the asset from El Dorado. and they'll be working on a feasibility within the next six months, an updated feasibility. They're a team of builders. It's a great, credible team, well-backed. We know them well, obviously, seeing some of their builds, and we expect them to be fast-tracking this asset to production. So a nice one to add to the portfolio. Moving to slide seven, just graphically the production by asset for us. Again, as I said, the asset base performing quite well. We had a strong quarter from Canadian Malartic. That had to do with increased tonnage, both increased tonnage and higher grades that were expected as more ounces come from the Barnett pit. That was a nice increase. I talked about how we expect H2 to be stronger for Eagle given their seasonal effects of the mine there as well as their ongoing ramp up. It was a good quarter from a CB perspective, primarily on grade, as they still have some catch-up to do on tonnage, but they had a really nice quarter on grade. I believe it was just a tick above 13 grams, and we'll talk a little bit about that mine as well later in terms of some exploration success or potential success that they're seeing in front of them. And overall, as I said, pretty productive quarter on all our asset base. Switching to slide eight for just a little bit more on Canadian Malartic. excuse me, I mentioned it was a strong tennis quarter. It was also a good quarter from grade perspective. So the open pit continues to do what it does. It just makes an awful lot of money for Nico and Yamada. They're on track for their 700,000 ounces of guidance this year. It's a hugely important asset for both operators. And our focus obviously remains on the ounces it delivers to us. But we continue to look forward as to what the asset is becoming and continuing to evolve into the infield drillings on the underground has returned very good results as released by Agnico and Yamana. A lot of that focus is obviously on East Goldie. We have a 5% royalty there. That's where 70% of the mine plan is. So that work was not unexpected, but obviously positive, which you want to see that continuing to be the case. And then in terms of upside, the Eastern extension, that deposit is getting a fair bit of attention as well. You'll recall at one point there was one hole, this type of hole, 4680 in the bottom right, which was 1,000 meters away. That had a really nice interval of grade and width. It was followed up on by another, which hit a similar type of mineralization where they expected it, but importantly also kind of had this offset zone, 400 meters below. over and you see it's tough to follow but you see that uh you know on the bottom left hand side of the the picture as well so early days um in terms of trying to turn that into uh ounces obviously and and minor balances but certainly hugely uh important i think and and the upside and the potential there is certainly hugely important. So we expect them to continue to be active on that front. They've got a big drill program this year, and we expect continued infill results and potential upside results from that program as well. On to slide nine, just quickly on a couple other core assets. We haven't touched on all of them here. Certainly, we're happy to talk about all of them, but I wanted to kind of give you the the core changes, if you will, or updates and catalysts. From a Manfield's perspective, that expansion is still going quite well in Chile. You would have seen that we bumped it out, obviously, with direction from the operator from that expansion being tied in at the very end of the year to Q1, so a pretty nominal punt into 2022, and had to do with COVID issues at one of their main contractors. So again, if those issues, which everyone is dealing with, frankly, means you're adding a month or two to the program, I think at the end of the day it's pretty trivial. We're quite happy with the way things are going at that expansion. And then from a slight increased perspective, you would have heard us say previously that we're expecting five years of 1.2 million ounces of silver annually for the first five years following the expansion. We've bumped that up to 1.3 million ounces annually of silver based on guidance from the operator. On the Eagle side, you know, H1 saw just shy of 60,000 ounces produced by Eagle. They've got a guidance of 180 to 200. So, work to do in the second half. But that's just the nature of the Eagle mine, where they don't stack ore in the coldest three months of the year, plus the ongoing ramp up. So we look forward to those ounces. We thought we might get a little bit of an uplift in Q2, but I think we'll see that uplift in Q3 and certainly in Q4. So we expect a stronger second half there. We also look forward to them continuing to, now that the mine is built and it's in the process of ramping up, start to put more and more focus on the exploration side of what is a very large and seemingly prospective land package, as well as their previously announced plans to, once they are ramped up, try to take it even further to 250,000 ounces. On slide 10, Just really quickly on two small but nice contributors that we have coming our way in Mexico. The Santana mine of Mineralimos, where we have a 3% NSR, should be producing first gold imminently from their heat bleach asset and putting out more disclosure on what that asset looks like for the longer term. So we expect that to be a nice catalyst for us the second half of this year. And then into the beginning of next year, First Majestics or Metano deposit is expected to come into production. They're working on some test mining now, updating resources and working towards a pre-feasibility study second half of this year. They're also active on the exploration side. So those are not huge, but certainly nice contributors just starting out in terms of significant mine lights there. On to slide 11, focusing on the ODEV assets. So first and foremost, the Caribou Camp. Again, some of you may have heard the update at 9 o'clock. There's an expected 200,000 metres to be drilled in Caribou this year. They've done half of that to date. So have been catching up, actually. It was a bit slower at the start of the year. Again, there were COVID delays. You can't ignore them when you need to kind of quarantine folks here and there. At times, the fresh eggs, so the spring thaw also deterred them a little bit as the ground was softer than expected. They went from 10 rigs down to four, and now they're back up to 10 rigs. So catching up, and you would have seen, or maybe just before that, at times, The delays on assay labs were quite ridiculous. I think at the peak it got to three or four months waiting for assays. They're now down back to regular levels. So you've seen a catch-up of exploration news coming up from ODEV. I think they've been on a steady clip of an exploration update every two, at most three weeks, and we expect that intensity to continue and lead into a new resource later this year. So that delay has pushed that resource a little bit later into the second half than we first expected. And as a consequence, pushed out the feasibility into the first quarter or more cautiously, the first half of next year. Important to point out that the permitting timeline remains unchanged. The final EA was submitted in late July. That's the document that drives permitting timeline. So that's still anticipated the middle of next year. Again, bouncing around a little bit, but that infill drilling is going well. It's connecting the dots as was expected. It's also pushing the resource potential down at depth. It's connecting some zones that we expected would be connected. So all that's going well. And the underground bulk sample permit at Cal Mountain is also a good achievement by the team. Beneficial to the timeline to be able to get underground early. Allows some testing as well of road headers and ore sorting. So making good progress technically. And moving forward, I did say I'd come back to the Bonanza ledge side of things. Worth remembering that that's a different beast. It's a satellite deposit, which is just permitted for small-scale mining. It has underground infrastructure, so it's somewhere you can get into. But it's not the main deposit. For instance, it's close to surface. It's got poor ground conditions in a fault zone. So it's not where you'd want to mine. but it's where they can mine today. It allows ODEP to train the staff, restart the mill. They've gone through some upgrades there that are useful for both Peninsula Edge and obviously Caribou. And most importantly, it allows the remediation of a historical tag file that's on surface from previous open pit mining. And that material will be used as underground backfill once the voids have been created to put it in. non-cash impairment there because things have costed a little bit more than was expected. Also because some ounces have been left off the table, that production has been pushed back by about six months. But the caribou production is still expected to start at the same time. So the period in between where you can mine the Spanagelish portion has been reduced. So Happy with the progress that's being made at Caribou on the main assets and I'm certainly happy with the technical achievements there. And then on the San Antonio side as well, the team's been quite active there. Odev will be drilling 45,000 meters in 2021. I think you guys know Sean likes to drill, so he's a bit behind on that one, but they're looking to catch up. They've got four rigs turning there. And if I had to guess, I'd assume there'd be an update in August, September. So far, the confirmation work that was planned to convert inferred resources to higher categories and hopefully fill some gaps is going well, is our understanding. So we look forward to that update as well. And then in terms of two catalysts there, the existing stock well that's on surface is expected to be under leach by the end of the year. And then more importantly, it's a nice You know, it's nice to do because it's sitting on surface. But more importantly, the bigger permit for the Cipucci open pit, deep leach, is also expected by the end of this year with construction starting in Q1. So that hopefully is a 2022 production event for us. As many of you know, the crushing plant has already been purchased. Components of it, some of them are already at site. The rest are on their way. So they're also making good progress there. At windfall, I'm on slide 12. Again, some of you would have been following what I think are exceptional exploration results that continue both from an infill and expansion perspective. At windfall, we highlight a couple of them here, over 2,000 grams, over 2.5 meters, 2.2 meters, over 400 grams. I think in the last press release, there might have been six results of over 2 meters and over 200 grams, so pretty stunning exploration results. The upside there, the infill and the upside there continues to prove out better than expected, including a new discovery a kilometer away that needs follow-up work. But I think the team there is doing an exceptional job advancing the asset into development phases with a feasibility expected in the first half of next year production in 2024 type timeframe, but also continuing to make the asset bigger and providing some upside there. And then at Upper Beaver, which is an ECO asset where we have a 2% NSR, they're working on a fair bit of drilling of their own, conversion, and then potential expansion. The grades are coming in quite nicely, both for gold, but in particular, the copper grade is seemingly coming along quite nicely. Some of the new results, we highlight one of them there. And that should have a significant impact on the size and potentially the grade. of the resource. I've heard talk about a potential other structure at depth. So all good news, which will be incorporated in a study in 2022 and hopefully prove to be the construction or the decision point. Again, if you listen to some of the commentary coming out of NICO, they're calling it a mine today and permitting is what will drive the timeline there. Last I heard from them guiding to production, and this is notionally guiding, I should say, to around 2027. Just quickly, maybe on some assets that we haven't put in the deck before I pass it on to Fred to give you a little bit more color on the quarter. Again, keeping with that theme of our assets working for us at CB, I touched on it earlier, it was a record quarter in Q2 in terms of production driven off that higher grade. They also encountered some unexpected high grade at the edge of the resource, which they were going to be following up on next year. That stoke was close to 15 grams. Island put out their best hole ever. It was 20 meters of 70-some-odd grams per ton outside of the existing resource and onto our 2% royalty ground. They're drilling $25 million. They've got a $25 million exploration budget this year, so they're hitting the asset hard. and are well on their way towards their expansion to 2,000 tons per day, permitting currently the shaft expansion, but progressing well. And at Lamac, they continue to progress at El Dorado with the underground ramp on track. That'll help their mine overall in terms of reducing costs, but it also provides better access to drill some of the other resources down there. So overall, good views across the portfolio, a really good quarter, and I'll let... Fred, starting on slide 13, walks you through some of the particulars of it.

Thank you, Sandeep. Bonjour. Merci d'être avec nous ce matin. Good morning, everyone. Thank you for joining us today. First, I would like to remind everyone that as we consolidate the balance sheet, P&L, and cash flows over Cisco development, we are providing additional segment information in our financial statements and the end press release. where we split our results from our royalties and streams business and results from our Cisco development. As mentioned by Sandeep, another great quarter for Cisco in Q2 with strong deliveries of gold and silver, which led to record revenues, cash margins, and operating cash flows from the royalties and streams business. Our operating cash margin on our royalties and streams reached 94%, or 97% if we exclude the Renard-Byman stream. On page 13 of the presentation, we recorded record revenues from royalties and streams of 49.9 million compared to 28.7 million in Q2 of 2020, which was, of course, highly impacted by the COVID pandemic at the time. Cash flows from operating activities were 30.9 million on a consolidated basis for the royalties and streams segment alone, Cash flows from operations reached $37.3 million compared to $16.8 million in Q2 of last year. If we go on page 14, we present a summary of our earnings and adjusted earnings. The consolidated net loss to Cisco shareholders was $14.8 million or $0.09 per share in Q2 of this year. compared to net earnings of $13 million in 2020 or $0.08 per share. The consolidated loss in 2021 was due to impairment charges recorded by a Cisco development of $40.5 million, including $36 million on the Balanzale Edge 2 project. On a consolidated basis, adjusted earnings were $20.2 million or $0.12 per share, comprised of adjusted earnings of $23.9 million, or $0.14 per share for the royalties and streams segment, and an adjusted loss of $3.7 million from Osisko Development, or $0.02 per share. On page 15, we have a summary of our quarterly results with additional details for the royalties and streams segment. including revenues of 57.2 million compared to 41 million in 2020 and gross profit of 35.7 million compared to 19 million last year. On page 16, we present a breakdown of our cash margin for Q2. The cash margin on our royalties reached 36.3 million and the cash margin on our streams amounted to 10.6 million. Our total cash margin reached a record $47.2 million in Q2 of this year, and for the first half of 2021, we generated cash flows of close to $94 million. And finally, on page 17, you'll find a summary of our financial position. Our consolidated cash balance was $255 million at the end of Q2, including $110 million for our Cisco Royalty's. and $145 million for Osisko Development. Osisko Gold Royalties held investments having a value of $188 million in addition to our investment in Osisko Development valued at the end of June at over $700 million. Our debt was tabled at $400 million with over $530 million available under the credit facility which was recently increased and extended. I will now turn the call back to Sandeep for closing remarks and questions.