OR Royalties Inc.

Good morning, ladies and gentlemen, and welcome to the Cisco Gold Royalties Q2 2022 results conference call. After the presentation, we will conduct a question and answer session. And 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, August 10th. 2022 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. And I would like to turn the meeting over to your host for today, Mr. Sandeep Singh. Bonjour, Mesdames et Messieurs, et bienvenue à l'appel conférence des résultats du deuxième trimestre de 2022 de redevances orifières 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 10 août 2022 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. J'aimerais maintenant céder la parole à votre hôte, M. Sandeep Singh. La parole est à vous.

Thank you so much, Operator, and thanks to everyone listening in. Hopefully you can hear me okay. I'm happy to be with you to update you on the quarter. It was an interesting quarter, certainly from a market perspective, quite volatile. The swings were quite swift. Notwithstanding that, for my two cents or what it's worth, I think the backdrop for gold remains extremely strong, even in the face of what's been a very strong US dollar and rising rates. Regardless, even in that volatility, and maybe as a result of that volatility, we still had a record quarter on a number of fronts. As I update you on that, I will be referring to the presentation that's now on the website. And I'll jump right into it after reminding people that I will be making forward-looking statements, as shown on slide two. We can probably jump right to slide four entitled Q2 2022 Highlights. As I said, I won't read through all the bullets. I'm sure most of you and all of you have read the beliefs and already commented on it, frankly. But for the record, in a number of fronts, first and foremost, which drives our business is the geo deliveries, the ounces that were delivered to us by our partners. gapping up nicely from Q1 to Q2 to 22.2 thousand geos. That makes the first half of the year just roughly 40 and a half thousand geos delivered to us. And I'll talk to you about our guidance on maybe the next slide of 90 to 95, but we do expect a significant uptick in the second half of the year, hopefully sequentially over the next couple of quarters for reasons that I'll go through, but hopefully are relatively obvious when I do. Um, so that builds well, a record in terms of geos, a record in terms of cash margins, uh, and a strong bottom line in the quarter and then a better, stronger second half for very obvious reasons in front of us. Um, I will point out, uh, perhaps maybe just make one obvious point from most people that our financials are still a little messy. Obviously we consolidate, uh, with the Cisco development. Uh, most of you know that, um, And we have tried to provide additional information for that on a segmented basis. We do still realize it's a work in progress, but I will say that we're close and we're closer than we ever have been. But ultimately, assisted development is doing what they should be doing as a developer. They're spending money advancing their assets. And OR is doing what it does, which is racking up cash. despite an inflationary market out there. So putting the two together, you know, slapping the two together, I think can lead to some misleading statements. So hopefully people were giving you the information that you need to differentiate. And if you look at one of those bullets, six or seven from the list, those adjusted earnings for the royalty business, for our fiscal royalties amounted to just almost 26 million Canadian or the money that we accumulated over the quarter and hope to continue to grow as the year and the years progress. We also, worth pointing out on this page, repaid our credit facility in full. That credit facility is now completely undrawn and available for growth as we go forward, hopefully growth into a market that is kind of leaning our way as a financier with some of the other taps in the market closed or significantly reduced. So I think that bodes well for us in terms of the types of opportunities that will come our way. Otherwise, standard quarter, we also announced a binding deal on the Tintic stream that we had already brought to you and commented on in Q1. Those I's and T's are getting dotted across, so that bodes well. And over the course of July, for the handful of days that we weren't in blackouts, with our geo pre-release and then our financials, we bought back 660,000 shares almost, uh, for $8.3 million. And we're quite happy as we were last year to take opportunities where the market is, uh, in our views, uh, you know, just, just, just not reflective of the value of the company still isn't, but when it gets really, really wonky, we're happy to step in there and disproportionately take our cashflow to buy back the best exposure to royalties that we think we can find out there. So that's just, My quick preamble, as we move through to slide five, you'll see the breakdown by assets as we usually provide in terms of where the ounces came from. Our core assets continue to deliver. Again, I think that bodes well for the second half of the year that we had a record in Q2, despite two of our meaningful assets, our second and third biggest asset, not being at full stride. And at the risk of boring people who already understand what that means, I'm referring to Mantos and Eagle at Q2. Eagle, I think most people know that the first half of the year is always a little bit more challenging than the second for the three coldest months of the year for the time being. Victoria doesn't process, doesn't stack ore. I think that those issues and the cold weather months drifted into Q2. I think that's obvious based on their numbers. So they had a first half that was similar to their first half in 2021. And you just look back at how the ounces came in in the second half of the year for them last year. I think it was roughly a 50% increase, H1 to H2 last year. And that was as they're still ramping up. So I do expect we'll see a strong second half from Eagle. That's one of the assets which I expect to continue to do better for us as they go. And then Mantos is the other we received. Deliveries that are kind of akin to their typical deliveries for us. You'll probably know that they're going through a very meaningful expansion from 4.3 million tons per annum to 7.2, 7.3 million tons per annum. It's a big lift. and we're still expecting to see the benefits of that. I think we've already started to see the benefit of that post-quarter, but if you follow Capsule and Copper, they've made good progress, maybe a quarter behind, but in Q3, they intend on or they expect to stabilize in terms of the throughput and optimize and stabilize at the new throughput levels and the recovery levels as well. So that's another story that's only going to strengthen at the year that's on. Moving on to slide six, and we've got a number of updates here on our portfolio. I'll touch on things as I go. I do want to make sure we leave sufficient time for questions, and I realize there's a lot of companies reporting today. So I want to make use of your time. If we glance over something that deserves more attention, we can certainly come back to it in the Q&A. First and foremost, on slide six, With Malartic, that story is phenomenal for us. It's our flagship royalty. It's, I think, the gold sector's flagship royalty, and it continues to strengthen. The underground is advancing at pace on schedule. That means there'll be a trickle of underground ore into the mill in early 2023. That will increase, obviously, as the years progress to ultimately overtake the open pit component of it. The story there is one of infill and extension drilling this year as they do the methodical work towards the end of the build. And that infill and extension drill work is going extremely well. Circa 20 rigs on the property. The good news, I think, will frankly intensify as they get more access from underground in the second half of the year. The exploration budgets are plus $30 million U.S. for 150,000, 160,000 meters of infill drilling, but also a significant amount of extension work. And not only, as we've talked about in the past, is the ore body seeming to grow down the extension of East Goldie, but you look at this result that's highlighted here in large font, 1.8 grams over 63 meters in a western extension of East Goldie, which previously does not have resources. So I think we couldn't be happier with what's going on at the underground, at the Arctic, the work that Nico and Yimena are doing there. And in the fullness of time, I think this asset is only going to continue to grow, extend at the very least in terms of mine life. We already know that we have a mine life out to 2039 based on half of the resources. more will get infilled into a mine plan, more will get added. It's just a question of where that takes us, but it's obviously a very good place. On slide seven, I think I've already kind of made the points I want to make with respect to MANTOS. At least, as I said, the focus is on optimization and sustaining throughput. They've guided to kind of getting there in terms of Q3, and we're already starting to see the benefits of that On our side, with respect to Eagle, I mentioned why we are excited about the second half of the year. Beyond that, and obviously they have to kind of get to, you know, they need to continue the methodical progress that they've been making and ultimately get to the first target. But beyond that, the work on Project 250 continues. That's their aim of getting to 250,000 ounces, in their words, in 2023. And they're also working on their project 2040, which is to the extent to extend the mine life out to 2040 with good results, both at depth and along strike in some of the satellite projects there. So that's all positive. Eleanor continues to kind of tick along. Study state Q2 was a little bit lower due to lower grades milled and throughputs. It is a remote site, and I think we've seen in the first half of the year implications of that from a COVID and quarantining and the like perspective. But overall, it continues to tick along and do reasonably well. Hopefully, they'll start to get past some of those issues as well. On slide eight. Excuse me. On Flight 8, with respect to Island, LAMAX, CB, those are three phenomenal Canadian stories for us, run by three excellent companies. They're all core assets to them. Individually, Alamos, Eldorado, and SSR are not ordered on the page. The Phase 3 or 3-plus expansion study that Alamos provided several weeks ago was fantastic for us. It moved the expansion from to 2,400 tons per day with a long mine life. They're still adding ounces. They're still doing significant drill work. As you notice, 58,000 meters planned for this year. And not only are the ounces growing, but our piece of the ounces are also growing. Right now we're getting an NSR that is, I think it's 1.38% exactly. And we expect that to be a blended rate of 2.25% over that new life of mining. So that's a great story unfolding, but so are LAMAC and CB. Good levels of production, a lot of work that's going into the assets. LAMAC contemplating a significant expansion. CB producing extremely well in the first half of the year and continuing to guide towards mine life extensions at the very least. at that operation. So good news for us on those fronts. If you look at slide nine, we've got on the page two long life base metal mines where we get the silver at Gibraltar and Sassa, you know, doing reasonably well. And we expect a strong second half from Gibraltar as they get access to some higher grade ore and the Sassa mine continues to do exceptionally well. And then, as you all know, or most of you probably know, Q2 was the first quarter where we added Bernard back, the Bernard screen back into the fold. We had taken the conservative approach of not including it in our geos and and alike. Whilst we weren't rightly so well, we weren't benefiting from the cash flow. The mine has been benefiting from higher cashflow. Diamond prices, on average, $124 a carat in Q2. You might remember that prior to COVID, it was lucky to get up to $70. So there's been a real step change in the diamond market, and their cost structure has also kind of come down, or at least been managed, even in an inflationary environment. So they're making money, they're paying the stream, they're paying the debt. All that's good news for us at Renard. It's very nice to get that asset back on track. On flight 10 and 11, if you will, we've talked about the producing assets on 10. The nice thing about our uptake in ounces from 2021 to 2022, forgive me, is a lot of those ounces, again, are coming from existing operations just being expanded or ramped up. So you argue lower risk growth, never no risk growth. So we are seeing some delays and if they amount to a quarter here and there or a couple months here and there in the grand scheme of things, that matters a lot less for us. But that's the best growth you can hope for. And then beyond that, when you look at the next bar, when you look at the arrow in terms of optionality past that, and when you look at slide 11, a lot of good assets being moved in many of these cases into the late stages of feasibility study work. That's true of Caribou. That's true of Windfall. It's true also of Back40, and they are in well-funded businesses who are, again, moving them forward in a difficult market for developers, certainly, but moving them forward in a straight line as you can get in the mining sector. These are names I think most of you know well. We can certainly talk about them in the Q&A for us. Upper Beaver and AK, I would point out, those are interesting assets that we're looking forward to getting some news from Mignico in terms of how they fit into the new Crispin Lake camp that they own. But I think that all bodes well with AK specifically. They're already drifting into it. They're drilling to expand it. And then Upper Beaver is the next one we're looking to hear some positive news from. That's kind of a story in terms of organic growth, if you will, when you flip the slide to the next slide, or at least the near-term growth story, when you flip to the next two pages, what we've done on slides 12 and 13 is just highlight a snapshot of, it's not the full list, we could keep adding pages of further optionality that people tend to forget when they think about us. But there are a lot of good assets on these pages. As I mentioned, there are others we could have added run by some pretty good operators undergoing some pretty important catalysts. I'll touch on a couple, but not all. When you think about something like Akasaba West, MECO recently, by recently I just mean a week or two ago, approved the development of that. It's essentially an ore body that gets sent to the Goldex mill, and that will start producing in 2024, a full-year basis. That's an additional 750 or so ounces per year to us. that I don't think most people had accounted for. So that's worth getting out of bed for, I would argue. Altar, again, we have a 1% royalty there in an asset in San Juan, Argentina that Aldebaran runs, Copper X4. Happy to see South32 step in for about 10% of the company for a $10 million investment. They've raised money subsequently. They put out some really exciting holes. They already had a pretty decent starter pack, but the last hole I saw was 700 meters of 0.5% copper equivalent, so nice to see activity there. Clearly, at Casino, which is a big asset for us, the work they've been doing, the investment by Rio Tinto, their involvement in some of the technical work has all been a good shot in the arm, and we look forward to seeing the conclusion of how their studies and their advancement pan out. I said I wasn't going to talk about all of them, and I mean it. I'll talk about a few more. But we are excited about the names on the stage. FCI is another really interesting one that maybe you haven't heard us talk about. It's in the James Bay region of Quebec. It's being advanced by a company called Patriot Battery Metals. We have a significant NSR there. And they're well-funded to drill 20,000 meters today. They continue to drill long runs of plus 1% lithium oxide. So that's a story that's definitely gotten legs in the last, I'd say, six to nine months. And we look forward to seeing it continue to develop. Hermosa, obviously, you know about that story. South 32, positive pre-feed last year, working towards, or I guess it was Q1, working towards a feasibility by middle of next year. That's a big ticket, a big contribution for us once they finally make the go-ahead decisions. and others on slide 13. I said a couple of times, so I won't talk about them, but if you look at the page, there's some pretty exciting catalysts there. And we expect that to continue to intensify, partly because of slide 14, we are seeing an immense amount of drilling and activity done by our partners on our ground. You've heard that from me before in 2021, 1.4 million meters just over that. I'd argue the rate is higher now, but if you're Factor $350 a meter, that's half a billion dollars almost of work done on our properties that we're not paying for, our shoulders are not paying for. And on the right-hand side, what you see that lead to is not only a replacement of the ounces that came out of the ground last year, 80,000 ounces for us, replaced by 114,000 ounces in reserves. But if you factor all the categories, our ounces that are getting out of the ground are being replaced by orders of magnitude. So that's We talked a little bit more in the previous pages about organic growth. This is really a depiction of, in my mind, of the sustainability of the business, the longevity of the business, and further upside or blue sky, however you want to describe it. We've talked about the recent transactions that we've announced, mainly in Q1 on slide 15. As I mentioned, we're really excited to have Kintec, uh, closed, uh, it says they're expected in Q3, but it's imminent any day now, as I said, just dotting eyes, crossing keys, but, uh, closed in the same manner. We announced it, uh, the deal between a Cisco development and the private sellers closed in late May. I think it was the last day of May. Um, so it was kind of a quiet period from a Cisco development in terms of talking about that asset for most of the first half of the year. But now that it's in the fold, we look for some positive news flow there and, uh, And the ramp has already started to make progress down to get to a larger throughput operation. In terms of CSA as well, we continue to advance those discussions with the SPAC, Metals Acquisition Corp, who are looking to consummate that transaction with Glencore. Obviously, a lot has changed in the copper market since that deal was announced. It's a little funny that we've swung from a world that couldn't get enough copper and And now apparently that was a false alarm. The world doesn't need any. I think the truth is in between. And what we see there is a very motivated buyer and seller and hopefully a pathway to getting a transaction done that we're still quite keen to participate in under the right circumstances. That's the update that I want to provide. I will pass it on now to Fred to just walk you through a few more of the particulars from the quarter and then happy to come back and field questions afterwards. So, Fred, over to you.

Thank you, Sandy. Good morning, everyone. Thank you for joining us today. Let's start with page 17 of the presentation. We recorded revenues of $51.5 million this quarter from royalties and streams compared to $50.7 million in Q1 and $49.9 million in Q2 of 2021. Cash flows from operating activities were negative on a consolidated basis as a result of the consolidation of the activities of Cisco development. But for the royalties and streams segment alone, Cash flows from operations amounted to $35 million compared to $37.3 million in Q2 of last year. The slight decrease was mostly the result of timing and the payments from the operators. These payments were received actually in early July. On page 18, we present a summary of our net earnings and just earnings. Consolidated net earnings to a Cisco shareholders was $17.2 million or $0.09 per share compared to a net loss of $14.8 million or $0.09 per share in Q2 of 2021. In 2021, impermanent charges from a Cisco development had generated dollars at the time. On a consolidated basis, the adjusted loss was $4.7 million or $0.03 per share which is comprised of adjusted earnings of $25.7 million or $0.14 per share from the royalties and streams segment and an adjusted loss of $30 million from a Cisco development or $0.16 per share. On page 19, we have a summary of our quarterly results with additional details for the royalties and streams segment, including 22,000 GOs in Q2 of this year compared to 20,000 in Q2 of last year. A gross profit of $35.9 million in 2022 compared to $35.7 million in 2021. And operating cash flows of $35 million were generated in Q2 by the royalty and streaming business, mostly as a result of the record quarterly cash margin of $47.8 million. If we move to page 20, we present a breakdown of our cash margin. So the cash margin from our royalties reached $34.4 million, and the cash margin from our streams amounted to $13.4 million for a quarterly record of $47.8 million, or 93%. On slide 21, we present the progression of the dividends paid to our shareholders since the creation of Cisco Gold Royalties in 2014. The dividend yield is approximately 1.7% as of this morning, and over $204 million have been returned to our shareholders at the end of Q2, in addition to $95 million that was used to repurchase a total of 7.4 million shares under our NCIB program. And finally, on page 22, you'll find a summary of our financial position. The consolidated cash balance was $449 million at the end of Q2, which include $213 million for Cisco Royalties and $136 million for Cisco Development. Cisco Royalties held investments having a value of $195 million at the end of June, in addition to our investment in Cisco Development, which is valued at approximately $200 million. Our long-term debt stood at $300 million at the end of June, following the repayment in full of the credit facility in April. We currently have 650 million available under our credit facility, including the accordion of 100 million. We have also acquired during the quarter a total of 247,000 shares under our NCIB program for 4.9 million, and we've acquired 659,000 shares in July for 8.3 million. So we have continued to benefit from strong commodity prices in Q2, which allowed us to generate strong cash margins and operating cash flows from our royalty and stream interests. And we are very optimistic for the second half of the year. I will now turn the call back to Sandy for questions.