OR Royalties Inc.

Good morning, ladies and gentlemen, and welcome to the OSISCO Gold Royalties Q1 2022 Results Conference Call. After the 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, May 12, 2022, at 8 a.m. Eastern Time. Today on the call, we have Mr. Sandeep Singh, President and Chief Executive Officer of and Mr. Frédéric Ruel, Chief Financial Officer and Vice President, Finance. I will now like to turn the meeting over to our host for today's call, Mr. Sandeep Singh. Bonjour, Mesdames et Messieurs, et bienvenue à l'appel conférence des résultats du premier trimestre 2022 de redevances aurifières au Cisco. 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. Please note that this call is recorded today, May 12, 2022, at 8 a.m. We have on the call today Mr. Sandeep Singh, President and Director-General, and Mr. Frédéric Ruel, Director-General and Vice-President of Finance. I would now like to give the floor to your host, Mr. Sandeep Singh.

Thanks very much, Operator, and good morning, everybody. Thanks for being with us. on a busy day, probably in a busy week. So appreciate your time. We'll go through a short presentation, Fred and I, and then we'll certainly open it up for questions. Just note that I'll be referring to the presentation that's now on the website. So jumping in on slide three, just in terms of highlights for the quarter, we'd obviously pre-released our geos at $18.25,000. for the quarter. With that comes a lot of information given our business model, but happy to fill in the gaps for you the rest of this morning. That excludes GEOs from the Renard stream as you've probably gotten used to us doing for the last significant period of time. Happy to report that hopefully that's the last time we have to say that with the Renard stream having been reactivated over the course of the quarter as we had previously guided. I think that's a very important step for us, a combination of the mine doing better, the dining market having recovered. So that's very good news for us. Not only has the stream been reactivated, but the last half of the working cap facility has also been repaid to us and the other lenders to our account that was $3.94 million Canadian. So happy with the progress there. Revenues from the royalties and streaming segment of just over 50 million, operating cash flows as well of just over 40 million. So we continue to benefit from our business model with the highest cash margins in our history last quarter, obviously based on the gold price having been quite strong. The margin of 94%, again, continues to track exactly towards our guidance. Adjusted earnings, again, from that segment of 15 cents per share. And over the course of the quarter, we completed that block deal financing that you're all well aware of. Timing those things is always challenging. Obviously, we were busy on the corporate development side, on the new acquisition side in Q1. And that's largely what that funding is meant to go towards. Always a challenge timing those types of things, but certainly happy in the current market with the volatility that we're seeing that the balance sheet has been strengthened as a result. We also paid our dividend of $0.055 on March 31st, and we announced this morning the same for July 15th for the quarter ending on June 30th. In terms of those transactions in Q1, obviously Tintic and CSA is what I was referring to. There'll be a couple slides later on where I can update you on the timing for both those deals, but simply put, still tracking towards end of Q2 for Tintic, and we've said second half for CSA, but so many hopeful that will be in the third quarter. In terms of things subsequent to Q1, we did, as opposed to sitting on the cash, waiting to make those payments, we did choose to repay the amounts outstanding on our revolver, as opposed to, as I said, paying those interest payments. The Renard stream has been reactivated, as I pointed out, and we published our second ESG report, which we're quite proud of the progress on that side, as well as our inaugural asset handbook. So trying to catch up on the disclosure side of what is a very important asset base and some important things that we're doing on the ESG side as well. If you skip to slide four, it's a slide or some version of a slide you've seen from us very many times. I believe most people on this call know the strength of our portfolio when it comes to the asset quality, the geographic focus, the precious metals focus. and the quality of the partners that we're involved with, and it's always worth highlighting. I think overall, when you take a look at the market that we're in, at the transactions that are being done, I think you look back at this portfolio, you understand the replacement value of it, the embedded growth within it, that is all kind of taking shape as we speak. On slide five, excuse me, that thesis I'm referring to continues to strengthen. Overall, I think it's fair to say that Q1 was a little bit lighter. We expected that. That's based into our guidance, so we're flying from that perspective, and we do expect a strong strengthening in a year, quarter by quarter, and certainly a very strong second half. The reason for that in Q1 was obviously, I think, fairly well known is the seasonality at EGLE. which we had talked about, the tie-in of the expansion at Manto, so essentially kind of taking your foot off the gas a little bit before you step on it again, and other ramp-ups at a couple of assets. So that's the rationale behind a steepening curve of geos, if you will, over the course of the year. But I think it's also fair to say that if you're looking at the whole sector, if you're watching the reporting over the course of Q1, I think the sector as a whole had kind of a little bit of a pullback in Q1 for a variety of reasons, labor, COVID, absenteeism, supply chain issues. So I think that's a pretty fair statement pretty broadly. For us, the good news is it's just a shift from one quarter to the other. We don't get the cost impact as our operating partners do at the operating level. So certainly I think that inflation protection and that business model protection that we offer is proving itself out given the volatility that we're seeing out there in some of the reporting. Over to slide six, I mentioned earlier, we do expect a strong second half of the year in terms of 2022. And then over the long term, I would say that our growth assets continue to steadily advance towards these projections. So, you know, this is an important slide for us. We put out, as you all know, our inaugural five-year outlook in February and, you know, try to put in focus for the market what is Pretty deep portfolio, a lot of moving pieces to it, some that are better known than others. But when you take a look back and you look at 10% or double digit CAGR growth over the next five years, and then you look at some of the assets that are in this arrow, that aren't factored into that five-year outlook, but that are undergoing pre-material catalysts as well. Maybe the timeline is a little bit more opaque right now, but we certainly expect the visibility to grow. Five years is a long time. So when you take that all together, it's an incredible amount of organic growth. And to it, when we can, we can do things like Tintic and CSA. We're happy to add external growth to that, but this is what's going to be fueling the company for the rest of this decade. On top of what's already in there and factored in terms of those assets, those assets continue to strengthen as you see on slide seven. We've been talking about a million meters drilled on our properties for the last four years. In 2021, that was 1.4 million meters. Despite a period where I think everyone is scrambling to access rigs, our grounds, our partners have always been putting good work in and that work has only intensified last year and we see that continuing on into this year. And then, even more important, the work is paying off. And you see that on the right-hand slide here. It's a new graph that we added into our asset handbook, excuse me, over the last couple months. And we've had increases on attributable ounces, so worth pointing out that these are kind of apples to apples. You know, when we, royalties are easy, when we have streams, we deduct the transfer prices so that we can compare them kind of on an NSR equivalent basis, if you will. So growth in reserves, growth in M&I, growth in inferred across all categories. And we can't sum these up. You certainly can if you want to. But these are ounces that don't have any extraction costs associated with them for us. So we expect that to continue and that free upside that we're benefiting from across our entire portfolio to only intensify. On to slide 8 and 9, I did mention those two transactions. Really nothing changed on both, just waiting for both to complete. Both were slightly more complicated transactions than the average, so hence longer time periods. Tintic was the acquisition by ODEV of two private companies, so a lot of paperwork, but our understanding is that's going well. There's a lot of moving pieces to those transactions. the acquisitions and NYSE listing for OEV and the financing closings, but that's all tracking well for being completed by the second half, sorry, in the second quarter. And we look forward to adding those answers to our portfolio in the second half of the year. We'll find out here in the near term where within that range of $20 or $40 million is ODV chooses to right-size that stream. And on the CSA side, slightly longer because of a de-stacking process that metals acquisition court needs to go through. So they're working methodically through that process. But, you know, I don't recall if we've had a chance to talk to everybody about this transaction. This was another one Tintic we were very pleased with that came through our network. This is another one that we got outside of participating in a process and paying the most. This came through relationships that we had and funding an acquirer. that we're quite happy to be associated with. And this hit all of our criteria in terms of production now, geography, upside potential, long life getting longer, throughput upside potential. So really hit all of our criteria and we'll be very happy when Metals Acquisition Corp can complete that transaction on the silver side. And then there's also still the potential that they may tap us on the shoulder for some of the copper exposure as well. So that's a bit of a high-level update. I'll pass it on to Fred to give you a little bit more color on the quarter itself, and then we'll be two or three of us happy to answer any questions you might have.

Thank you, Sandy. Good morning, everyone. Thank you for joining us today. As you can see on page 10 of the presentation, we recorded revenues of $50.7 million this quarter from royalties and streams. compared to $49 million in Q1 of 2021. Cash flows from operating activities were $23.6 million on a consolidated basis. For the royalties and stream segments alone, cash flows from operations reached $40.5 million compared to $37 million in Q1 of last year. On page 11, we present a summary of our net earnings and adjusted earnings. The consolidated net earnings to a Cisco shareholders was $200,000 compared to net earnings of $10.6 million or $0.06 per share in Q1 2021. The lower consolidated net earnings was mostly due to mining operating expenses incurred by a Cisco development in Q1 2022. On a consolidated basis, adjusted earnings were $2.2 million or $0.01 per share. comprised of adjusted earnings of $24.8 million, or $0.15 per share, from the royalties and streams segment, and an adjusted loss of $22.7 million from a Cisco development, or $0.14 per share. On page 12, we have a summary of our quarterly results with additional details for the royalties and streams segment. including, as Sandeep noted, 18,251 GOs in Q1, gross profit of $36.2 million compared to $34.6 million last year, and operating cash flows of $40.5 million that were generated in Q1 from our royalty and streaming business from a record quarterly cash margin of $47.5 million. If we go on page 13, we present a breakdown of our cash margin. The cash margin on our royalties reached $35 million, and the cash margin on our streams amounted to $12.6 million for, as I said, a quarterly record of $47.5 million. On page 14, we show the progression of the dividends paid to our shareholders since the creation of our Cisco World Royalties. At the end of Q1, over 194 million have been returned to our shareholders by dividends, in addition to 86 million that was used to repurchase a total of 6.7 million shares under our NCIB program. And finally, on page 15, you'll find a summary of our financial position. Our consolidated cash balance was 449 million at the end of Q1. including $293 million for Asisco Gold Royalties and $57 million for Asisco Development. Asisco Gold Royalties held investments adding a value of $250 million at the end of March in addition to our investment in Asisco Development, which was valued at over $400 million. Our debt was tabled at $407 million at the end of June. In April, we have repaid the outstanding balance under our credit facility. As of today, we have $650 million available under our credit facility, including the accordion of $100 million. We have also acquired in Q1 250,000 shares under our NCIB program for $4.9 million. So we have continued to benefit from strong commodity prices in Q1, which allowed us to generate, once again, strong cash margins and operating cash flows from our royalty and stream interest. I will now turn the call back to Sandeep for questions.

Yeah, operator, feel free to open the line.

Thank you. As a reminder, if you'd like to ask a question, press star followed by the number one on your telephone keypad. Your first question comes from Trevor Turnbull from Scotiabank. Please go ahead.

Yeah, hi, Sandeep. I guess my first question was about the CSA transaction. You mentioned the potential timing of closing of that deal later this year. I just wondered if you had a sense of when you might know if Metals Acquisition Corp would make a decision as to whether or not they would take advantage of that additional copper stream.

Yeah, good morning, Trevor. Look, I think that will come into focus in the nearer term. Obviously, to this fact, there's hoops you need to jump through. But the intent of that was always, and it's, you know, that copper stream needs to be mutually agreeable to us and to them. The silver part was binding, the copper was not. But we expect, you know, we're in the middle of May, we expect kind of, I would say, over the next several weeks or months, their funding package to come into focus. They have to then obviously describe that in their disclosure documents to go through the de-spacking process. So I would say over that time period, you know, we and they should know if that's something they want to avail themselves of and if it's something we want to pursue. So that's, you know, roughly, I think that's a fair timeline.

Okay. Thank you. And then the other question I had is strategic and related to Sandstorm and Nomad's merger. Consolidation clearly makes sense for Sandstorm and its strategy. And we've seen other smaller royalty companies feel consolidation also makes sense for them. Given your organic growth and the opportunities in your pipeline, it seems that it doesn't make sense to really think much about consolidation for Cisco right now. But is there a scenario down the road where you think that might be part of your toolkit going forward?

Yeah, look, there's a lot there in trouble, but I'll try to answer it. I'd say, look, I don't disagree with your conclusion. Let's put it that way. I'd say our prime focus, and you've heard me say this over and over again, is to unlock the value of our current portfolio. It's incredibly valuable, and it's not trading where we want it to or anywhere close. So that's job one. You know, we've said... I think we've all said, frankly, that there were a lot of companies created over 2020, 2021, or part of 2021 in the royalty sector. We didn't think there was enough, especially on the smaller, early-stage side, for those companies to necessarily thrive. So I think some consolidation is warranted, and we've been happy to kind of watch it with interest, given that we're in the sector, but nothing more. So I think that's normal and it's healthy. And in the royalty sector in particular, there's no such thing as amassing too many royalties and streams. It's not like an operating company that eventually becomes too big. So you can certainly pile up royalty checks. So I think all that makes sense. We'll stay focused on our business. Overall, when we just think about growth, if I can zoom out a little bit, Trevor, we'll grow when it makes sense for us. And again, you heard me for 18 months say that we didn't like the look and feel of transactions out there. So we took a hiatus and we focused on our own assets. And then over the course of Q1 with Tintic and CSA, we found transactions that we got off the beaten path, if you will, and we got good deals on and we acted on them. So That's how we'll continue to conduct ourselves, and I think that organic growth that we have that you highlighted that's pretty special on top of trying to do things like Kintec and CSA when we see them makes for a pretty important and pretty special pipeline.

Great. Thank you very much. That's all I have.

Again, if you'd like to ask a question, press star followed by the number one on your telephone keypad. And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.

Okay. Thank you, operator, and thanks for taking the time. Thanks for taking it easier on us than usual because my voice is not in the best shape today. Look, we're always available. If there are follow-up questions, I do realize it's a busy week. There's a lot you folks are catching up on. So if you need anything else from us, we're always available. But otherwise, I'd sum it up by saying a pretty standard quarter for us. And looking forward to the ounces starting to pile up. Very happy to have solved one of our problem children assets in Renard. We work on the other diligently. So I think there's a lot of good things happening in the portfolio. We certainly look forward to closing those deals as well that we've announced, hopefully by the time we next speak. So all the best and have a great rest of your week. Thank you, Opera.

This concludes today's conference call. You may now disconnect. Thank you.