OR Royalties Inc.

Good morning, ladies and gentlemen, and welcome to the Osisko Gold Royalties Q3 2021 Results Conference Call. After the speaker's presentation, we will conduct a question and answer session. If you'd 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, November 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 your host for today's call, Mr. Sandeep Singh. Bonjour, Mesdames et Messieurs, et bienvenue à l'appel conférence des résultats du troisième trimestre de l'année 2021 de redevances orifères au Cisco LT. 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 10 novembre 2021, à 10h00 de l'Est. Nous avons sur l'appel d'aujourd'hui M. Sandy Psing, président et chef de la direction, et M. Frédéric Ruel, chef de la direction financière et vice-président finance. J'aimerais maintenant céder la parole à votre hôte, M. Sandy Psing.

Great. Thank you, operator. Good morning, everyone. Thanks for joining us for an update on our Q3 financials. Really good quarter for us. I'm not getting tired of saying that. So looking forward to update you on our developments over the course of the last quarter and then looking forward. As we do, I'll point out that there is a presentation on our website. If you don't already have it, we will be walking through that, Fred and I, pointing out slides as we go. So please make sure you pick up that presentation. And then starting on slide two, I'll also remind you that we'll be making forward-looking statements as we give you this update. So please be mindful of that fact. On slide three, just starting off with some highlights on the quarter we earned, as you already know, given that we pre-released these numbers, just over 20,000 geos, gold equivalent ounces for the quarter, which led to a record in terms of revenues. and cash flows of $50 million and $44 million respectively for the royalty and streaming segment of our company. The cash margin stayed very similar, 93% or 97% excluding Renard, so no change in that high margin business. And then... On the net earning side, $1.8 million Canadian. That's obviously as a result of the impairment on the Cisco development side of Bonanza Ledge 2. A reminder on that front that the purpose or one of the primary purposes of that BL2 component, which is not the primary Caribou asset, is for training. It's largely for the remediation of a pack pile that sits on surface. And it's an area that can be worked while to commission the mill while the larger project cannot be touched in the permitting process. So a bit of noise there, but not more than that. Adjusted earnings from the royalty segment of 23.3 million Canadian or 14 cents a share. As you know, we increased our dividend a quarter ago to five and a half cents. and paid that dividend on October 15th. We've also reissued that dividend for the next quarter in the same way. In terms of some acquisitions, maybe I'll just jump around a little bit. Apart from the dividend, we've also been more active on our ENSIB over the course of the third quarter of buying back 1.7 million shares at an average price of 15. We've been saying this, the disconnect, if it gets too wide between our fundamental value and our share price, we would take advantage of it. And we did so more aggressively in Q3 and we'll look to find, uh, if we're given more opportunities, we'll, we'll take them in the future in terms of, uh, new investments we acquired, as you know, that 2.75% royalty on the TZ project in Brazil, which is now being pushed forward by G mining, uh, very aggressively. We'll talk about that. That does have a buy down, a right, which could take it down to 0.75%, which is how we, uh, We thought about it and we also post the quarter concluded a transaction to buy a small portfolio of assets from Barrick with a flagship asset in that that's moving forward, a high-grade asset that I will update you on just on the next page. So a productive quarter for us and a lot of good things happening throughout the portfolio that we'll talk about through the rest of this presentation. On slide four, I won't go through it because we already have on the TZ side. I think we talked about this last quarter as it was a subsequent event. But generally, you know, good progress from G-Mining. We're expecting a fees in the early part of 2021, sorry, 2022, forgive me. construction financing to be kind of sorted out in H1 with the construction decision expected in the second half of next year. So fast tracking, and we look forward to that news flow as well as exploration upside coming from that group. On the Barrick portfolio, the asset I was referring to was a 2% royalty on the West Kenya project that's being operated by Shanta Gold. It's a very high grade, very high IRR project with a very capable operator in the region. who has the capacity to build a mine, and this is a core part of their growth strategy. So we look forward to the level of emphasis that's going to be placed on this asset with Enchanta. You'll notice there's some numbers there in terms of current expectations of a high-grade 105,000-ounce-a-year type mine for a long mine life. It also sits in a very prospective large land package, about 1,200 square kilometers, relatively untested. With some of the best real results coming out of it anywhere in the sector at this point, intervals including four meters of over 700 grams, six meters of over 200 grams a ton. So that's another kind of small single for us, but one that we think could add a lot of value in the years to come. On slide five, we touched on it earlier in terms of our returning capital to shareholders. We have a very strong dividend yield of 1.4%. We've returned capital to shareholders every day since existence of the company. And that NCIB just upped it. Between the dividend and the NCIB this year, we've returned more capital to shareholders than anybody in our peer group, if you put the two together. And that will remain a focus for us. Our high margin business allows us to do that no matter what's happening in the commodity cycle. Obviously, great day today, but irrespective of the gold price, with a 97% cash margin business, this can be a go-forward factor in our company. On slide six, you just see the production over the quarter by assets. I'd say the producing asset base is performing extremely well. They're positive catalysts across the board, and we'll touch on some of them in the subsequent slides. Also worth pointing out on a day where gold is having a bit of a run, that we provide gold and silver as we provide the highest precious metal weighting in our peer group, we believe are amongst the highest, at a point where we think gold has an opportunity to really outperform after being range-bound, frankly, either down or range-bound for the last 12 months. Obviously, the CPI number out of the U.S. is not lost on anyone today. I think it's important to point out that it's not only the overall CPI number high, the core number is also high. And I think the inflation story is broadening. And I think that rhetoric about it being transitory for much of 2021 is starting to feel more and more hollow. So we think there's a good backdrop for gold. Amongst that backdrop, we're going to be delivering more and more gold ounces at the right time, we believe. Move forward to... Forgive me, it says... Slide seven for me again. But the Canadian-Malartic slide. Obviously, this is our flagship asset. It's a phenomenal flagship asset. On the operating side, it continues to do extremely well. Obviously, the catalyst that most people are watching for is the underground story to develop. In terms of the underground's actual development work, that's progressing ahead of schedule. The infill drilling routinely is returning wide, very high-grade results for East Goldie, down to significant depths. The exploration or the extension work of eSchoolD is also coming in extremely nicely, promising widths and grades down to two kilometers of depth and out a kilometer and a half from the closest resource ounce. So a lot of potential for upside there. Based on the disclosure from the operators, we expect a healthy resource increase in early 2022 and look forward to that success. to that news flow. Apart from what I've already talked about, there's also other components of potential growth. There's a portion called Odyssey Internal, which if you look at the bottom left here, is kind of labeled as that porphyry, those porphyry rocks sitting between Odyssey South and North. Those have had strong intersections as well in the early days, but that could contribute with more drilling. Overall, right now, I believe there are 15 rigs active It's been 95,000 meters drilled in the first three quarters. So we expect that momentum to continue. And as it does, really hasn't been anything, any step backward on that story. It's only gotten better as the operators focus on it. So fantastic place to start. On slide eight, with respect to two other significant assets at Mantos, we've talked about this before. The, you know, the, the, The debottlenecking project, if you will, the expansion project is nearly complete. They're giving us a 99% kind of pre-commissioning progress. The overall completion of that is still expected in the first quarter of next year, at which point we start to see a ramp up in ounces there, expecting deliveries in the first full five years of post-expansion to average 1.3 million ounces of silver. So a significant increase for us. Frankly, one of the better copper intermediate companies in the sector, and we expect as transparency increases on this asset and as the ounces, frankly, start coming out of the assets, people will start to appreciate this mine for what it is and our silver stream for what it means to us. At the Eagle Mine for Victoria, that's really good news as well. Great result, frankly, in terms of the ramp-up. It produced almost 56,000 ounces in the quarter, so a big step up versus Q2. So it's nice to see the ramp-up going as well as it is. Obviously, they're still focusing on exploration, but we expect that effort to ramp up as well. Poor choice of words, that effort to accelerate as the ramp up starts to get to steady state and are keen to learn their plans to push the mine even further to a 250,000 ounce a year type level in the near term. So excellent update on that front. On the next slide, slide nine, just a couple others. And we're touching on not all of our assets, but picking out some things that we think are salient. I'm very happy to see Mineralimo start to pour gold or carbon to then pour gold off of. Sahip Leach in Mexico, where we have a 3% NSR. We expect that company to scale up operations as they go at full capacity for a full year. 1,000 geos for us. It's a brand new asset. It'll mark our 18th producing asset and look forward to the success of that endeavor. On the CB side, Our 3% royalty there has been an important one for us for a long time. Nice to see the record level of throughput there in September trending towards and expectations that they'll trend towards the higher end of their guidance. And then even more importantly, the expiration results that they've been talking up in the near term look very promising. And we look forward to an update on that front in 2022. The gap hanging wall is kind of the next phase of production. And you'll notice there are a couple of bullet points with intercepts that bode extremely well. So positive results, not just on that ore body, but across all the ore bodies that make up the CB complex. And look forward to more information on that carrying into the next year. On slide 10, updates on the assets that are within a Cisco development corp, so Caribou and San Antonio assets. Caribou, I think at the end of the quarter, they were up to 152,000 meters of drilling. That gives them enough information to put the pin in it and now work towards a reserve update towards the end of the year or very early next, but that type of timeframe and still tracking for a feasibility study in the first half of 2022. So those will be the major milestones there. In the interim, they've had good success from a permitting perspective, including getting an underground bulk sample permit at Count Mountain, which is not necessarily easy to do when you're in the process of a broader permitting cycle. So that shows the strength, I believe, of the relationship that they have with the regulators. And so that's work that they can achieve in 2022, which will give them a head start in terms of information and just a head start on the asset overall. So a big, large, large catalyst on that story expected in 2022 along the same timelines that we've already talked about. San Antonio A total of almost 23,000 meters have been drilled. We expect positive potential increases on both the oxide and the sulfide level of that story. Results should be expected shortly. So it'll be good, frankly, for us and everyone to see more visibility on that asset. We're looking forward to that event. And we think as they continue to drill, the upside potential there, both in oxide and in sulfide, is quite high. So we look forward to that story taking shape tomorrow. here in the very near term. In the meantime, they are putting the existing stockpile back on leach with the new leach that's constructed and completed. And so we look forward to a small amount of production from that stockpile, which will be helpful to the overall story. A couple of other development assets worth touching on today. First, Upper Beaver on slide 11 here. know the drilling there being done by ignico is continuing to prove out there's been some very long uh high grade runs uh in the infill program that they're doing and potentially expanding it as well uh so so we expect that we frankly expect a pretty significant update overall in 2022 with respect to uh drilling and resources the feasibility the plan and the timeline overall for development Just recently, a project description was submitted in September, which described a 10 to 15,000 ton per day operation with a 16 year mine life. So pretty important asset. It's one where if you go back to the commentary from Magneto, they've been talking about it for some time as being a mine, quote unquote. The question has been timing and when do they phase it in? I think with the merger with Kirkland Lake, Uh, you know, this is one of the areas that they've been talking up about potential synergies. Uh, so that has the potential to fast track things, uh, not only for upper beaver, um, but also for, for other assets like AK amalgamated Kirkland, where we have 2% royalty as well. There are 700,000 ounces there that are sitting within 300 meters of the Prior, we're probably obviously not a standalone asset, but can that come into play for us? We certainly hope so, and we look forward to hearing more about how that all fits together over the course of next year. And then Back40 is an asset currently run by Aquila, which has gone through some permitting hiccups, maybe not the right word, but some permitting challenges. We're happy to see kind of a revamped permitting process underway, one with a much smaller footprint, smaller open pit, bigger underground, which should serve their permitting process well. And probably also happy to see Gold Resource Corp, a larger producing entity, come in and see the same thing that we do and Aquila does in terms of the potential there. So having a larger, better capitalized producer see that value in back 40 and the value in the work that the Aquila team has been doing is a positive step and a really big step forward in terms of this significant stream for us. So we look forward to that transaction being completed, the permitting work coming out with a positive result, and then hopefully this becoming a core part of Gold Resources' growth strategy for their second assets. On slide 12, this is a slide that we kind of show more routinely, so I won't go through it in detail, just our growth profile. A lot of organic growth on the come, I guess, is the summary of it. Some of it hits in 2022 and 2023. There are other chunky assets that are moving forward more to the middle of the decade, but they're generally assets that matter. These are important assets in the sector run by credible groups. and never as fast as you like, but they're on the come. Even our long-term assets are benefiting from significant catalysts and progress. So when you look at this page, I think we've got a decade of growth in front of us that's in strong shape, and I look forward to seeing that develop over the years. So I'll pause there and hand it off to Fred, who will give you a little bit more color on the actual financials, and then I'll be back to wrap it up and for the Q&A.

Thank you, Sandy. Good morning, everyone. Thank you for joining us today. Q3 was not too different from Q2. New records were reached with strong deliveries of gold and silver, which led again to record revenues and operating cash flows from our royalties and streams business. If we go to page 13 of the presentation, we recorded record revenues of 50 million compared to 41.2 million in Q3 of 2020, which was, of course, impacted by the COVID pandemic. We also had offtake revenues in 2020, which is not the case in Q3 of this year, as our last producing offtake was converted into a stream last April. Cash flows from operating activities were 41.1 million on a consolidated basis. For the royalties and streams segment alone, cash flows from operations reached a record $44.1 million compared to $37.3 million in Q3 of last year. If we go on page 14, we present a summary of our earnings and adjusted earnings. Consolidated net earnings to Cisco shareholders was $1.8 million or $0.01 per share compared to $12.5 million in 2020 or $0.08 per share. The lower net earnings as mentioned by Sandeep was due to the impairment charges recorded by a Cisco development of $33.3 million. On a consolidated basis, adjusted earnings were $17.9 million, $0.11 per share, which includes adjusted earnings of $23.3 million or $0.14 per share from the royalties and streams segment and an adjusted loss of $5.4 million from a Cisco development or $0.03 per share. On page 15, we have a summary of our quarterly results with additional details for the royalties and stream segment, which includes a gross profit of $33.8 million compared to $30.8 million last year. And as we have previously mentioned, operating cash flows of $44.1 million were generated in Q3 by our royalty and streaming business for a total year-to-date of $118 million. On page 16, we have a breakdown of our cash margin for Q3 and the first nine months of 2021. In Q3 of this year, the cash margin on our royalties reached $34.4 million. The cash margin on our streams amounted to $12.1 million for a total of $46.5 million. This brings the total cash margin for the first nine months of the year to $240 million. And on page 17, you'll find a summary of our financial position. Our consolidated cash balance was $152 million at the end of Q3, including $80 million for Cisco Go Royalties and $72 million for Cisco Development. Cisco Go Royalties held investments having a value of $169 million at the end of September, in addition to our investment in Cisco Development valued at over $500 million. Our debt was stable at $405 million with over $535 million available under the credit facility, which, as you know, was increased and extended last July. We have also acquired 1.7 million shares under our NCIB program for $26 million in Q3 for a total of $2.1 million in 2021 or $30.5 million. In summary, we had record revenues and operating cash flows in Q3 as a result of strong deliveries and gold prices. And with the increase in gold prices and silver prices this morning following increased inflation in the U.S., we can only be optimistic for Q4 as well. I will now turn the call back to Sandeep for closing remarks and questions.