OR Royalties Inc.

Good morning, ladies and gentlemen, and welcome to the OSISCO Gold Royalties Q3 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, November 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. 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 l'appel conférence des résultats du troisième trimestre 2022 de redevances aurifières au Cisco. Après la présentation, nous procéderons à une séance de questions et réponses. Thank you, operator. Good morning everyone.

And thanks for joining us. I know it's a busy period, obviously made busier. There's a transaction in the market today, as well as a CPI print, which was fractionally lower than what was expected. It's pretty amazing what qualifies as good news, but we will take it as there certainly seems to be more glimmers and sparks and positivity today. in the gold market. So happy to be talking to you this morning. Also talking to you at a time when we're continuing the simplification of our business quite significantly. And we'll go through that. Hopefully you've already seen that in the quarter that you're looking at. I am going to be pointing to some slides, not doing a page flip, but pointing to some slides that are on our deck. So please, if you haven't already, you can go pick up the Q3 results deck on our website. I think To finish off the preamble, maybe our business, as I said in our press release, our business has never really been stronger. It's doing exactly what it's meant to be doing. It's providing inflation protected gold exposure. Our assets are big. They're getting bigger. They're long life. They're getting longer. They're in fantastic jurisdictions. And we're partnered with some of the best in class who are doing exceptional things on our collective behalf. So The portfolio is doing well. The growth assets are moving forward. In the meantime, we continue to make records. We continue to return capital to shareholders, and we continue to invest in our future, all the while simplifying the company, which is what we've said all along. There's two things that you've heard me say over and over and over again over the last three years. It's been discipline and simplification, and hopefully you're seeing that in our progress over that time. So on the deck, I will just jump straight to slide four in terms of the Q3 results. And very happy as a non-accountant to be talking to you about deconsolidated financial results for the first time. This is something we've pointed to that we would get to. It was just a byproduct of the spin out of ODEV that we had to kind of turn our way through. And with the reduction in our share ownership over the course of the year, as well as other fine-tuning of our investment rights. We're happy to kind of draw that line on September 30th and show you a set of financials for Q3 which are significantly cleaner. Fred Ruel, our CFO, will help you interpret them a little bit later on, but hopefully fairly self-explanatory. I'm happy to have that accounting noise behind us. You've already seen And I think with many of you, we've already talked about the high-level numbers for the quarter. Again, it was a successive quarter of records on all fronts in terms of GOs delivered to us, revenues, cash margins, revenues and cash margins, despite gold and silver prices being down quite significantly over the quarter versus Q2 and records on GOs. despite the gold-silver ratio not really working in our favor either with the same silver ounces converting into fewer geos at the time. That's kind of since resolved itself. So happy to have that be the case in Q3, especially as some of our core assets continue to grow and hit their stride, hopefully in Q4 and beyond. So a good place to be. That's resulted in adjusted earnings for the quarter, just shy of $26 million or $0.14 a share there. And again, as I mentioned, Fred will walk you through the numbers a little bit more closely later in the deck. We've been active. We've been perhaps more active than you've seen us. I think we were in the minority, at least in terms of saying that in 2020 and 2021, we didn't like the look of a lot of the deal flow that was out there and we were going to be disciplined and we were going to let our organic growth play out and pick our spots. And now we're I think we've certainly been talking about a better pipeline that we like, not an infinite one, but a finite pipeline that is better. And we've started to pick away the 1% NSR on Meramaka, a very nice addition to the portfolio team. We quite like a large prospective land package. I'll talk to you about it a little bit later. And then more recently, the Solgold transaction, an NSR on a truly world-class Copper, gold, porphyry, that term world-class gets thrown around quite a bit in our sector, but I think this is one of the few that it actually qualifies on, and we're pleased to be partnering with that team that we know extremely well. We also closed, it was a little bit long in the tooth, so it's not as recent, but we did close the Tintic deal, the Tintic Stream. I'm very happy to see that land package, that high-grade starter, if you will, starting to take shape. So that's just a bit of the high level. On slide five, you've got a breakdown of the geos by asset. We'll pick on some of these individually as we move forward. Starting with Canadian Malartic on six, you know, in terms of our flagship asset, frankly, we couldn't be more pleased with the turn of events that are happening. You know, both Cignico and Yamana have been doing exceptional. grow the deposit, the catalyst that they've been talking about and the catalyst that we see in front of us are tremendous. And then more recently, couldn't be happier to see the asset in all likelihood getting consolidated under Ignico as the group that knows that part of the world best in the Abitibi has a number of operations. And we fully expect that under kind of 100% banner, they can unlock even more values. That's certainly what they've already indicated without being able to talk about the transaction all that much, but certainly our sense is there's more upside for us. As we talk about the go forward for the asset over the next maybe several months, three to six months, You know, if you just follow the disclosure from the operators, East Goldie is growing in leaps and bounds. We already knew that it was growing to the east down plunge with significant hits a kilometer plus away. It's now growing in the other direction in kind of the internal zones. And currently, based on the drilling, seems to have an extent, a strike length of about four kilometers, only a kilometer and a half of which is in the current resource range. And as well, recent commentary from the operator suggests that a large component of the inferred resources, if I'm looking at slide seven, will migrate into indicated as early as year end. So infill drilling has gone well. Width grades have exceeded what the resource suggested. We expect the ounces to grow significantly. We expect the conversion of ounces to happen quickly. And we certainly look forward to Agnico having the asset available. 100% in their company to unlock further value. Jumping to slide eight, maybe picking up on Mantos and Eagle there. You know, quite happy with the progress at Mentos. It's going in definitely the right direction. In Q3, they did average lower throughput, frankly, probably lower than Q2 or maybe akin to it. I would actually argue a little bit lower. I think they're in the 14,000 ton per day range, 7.3 million tons would be 20,000 tons per day. on the full steady state. That was due to some unplanned downtime activities or events, I should say. In October, though, the mill operated pretty much right at that. It's not higher than that 20,000 ton per day level. So that bodes well. They're also talking about the ramp up kind of being complete by year end. So Q3, we didn't see that uplift that we were expecting. Again, that bodes well that we were able to have a record year, sorry, a record quarter without Mantos hitting its full stride. And we look forward to that, more of that in Q4 and all of that in 2023. Similarly for Eagle, again, that record didn't have much additional contribution from Eagle as they're still working their way up to nameplates, making methodical progress. Obviously, the conveyor belt failure or setback in Q3 was not ideal, but they've resolved it. And they're working their way up. So those ounces for us, whether they flow from one quarter to the next, doesn't obviously have as much impact as for the operator. But we're certainly happy to see some continued progress on both of those, which are core assets for us. And on the Eagle side, while that progress is being made on the operational side, really nice catalyst on the upside side of things. with Raven coming in at a maiden resource of just over a million ounces at 1.7 grams, about two or three times the grade of Eagle. Early days, early days in terms of ounce count, we believe, and early days in terms of seeing how that flows into an eventual mining scenario, but certainly encouraging that they're now being able to get to some of the exploration upside that we always thought was on that very large land package. I'll jump ahead, and certainly we can come back to any and all of the assets, perhaps in the Q&A portion. But jumping to slide 11, again, you've seen this from us before. We have a significant amount of production now. Our core assets are going to unlock even more production for us. Our producing assets are going to unlock even more production for us in 2023 and beyond. And to that, we'll be adding some pretty chunky contributors that are moving forward at a pretty good rate that are well-funded, well-backed in this market, even in a gold market that wasn't as conducive until this past week or so, moving forward. And in the optionality category, some of the best things in the sector, we believe, that matter, and adding things like Cascabel, and Meramaka to that I think are only strengthening our longevity. Maybe let's jump to slide 13 in terms of some of those recent transactions. I touched on a couple. We didn't talk about CSA at the onset. That's one that is kind of nearing hopefully the finish line. Obviously, a lot's happened to the copper market since that deal was announced, but we were backing not only an asset but a team. and I have a lot of confidence that that team can get things done on this transaction. So looking forward to them finalizing their financing plans. Obviously, a little bit of that is market dependent or more than a little bit of that is market dependent. But again, it's a strong team. And by all accounts, they seem to be getting closer and closer to some positivity on that transaction. So that'll be good. Tintic, we already touched on a number of times. But having the team sink their teeth into that high-grade, ultra-high-grade deposit and start to see how it's growing is positive. And on Merrimacka, we touched on it a little bit earlier as well. Really, really nice addition. It's simple, ticks all the boxes. It's a large, very prospective land package. Even since we've acquired the NSR, the resource has grown nearly 2x obviously through diligence, we knew that that was, that was coming and we paid for a little bit of that, but, uh, but really happy with the growth, not only in resources, but also the, the expectation that there's perhaps a larger production scenario there, which again, uh, we were privy to, uh, and now so is the market. So good additions to the portfolio, things that matter, things that get built in, uh, you know, or things that operate, uh, regardless of, uh, of commodity cycles, just really good assets to have in the fray. And to that, on slide 14, or over the next few slides, we think the addition of the SolGold NSR is tremendous. It is a phenomenal generational asset. I think it's a win-win for us and the company. They obviously were running low from a treasury perspective, but happy to step in there and support them. It's a team that I've known since 2016, 2015, when they made the discovery. Nick Mather as the founder and the Cornerstone team led by Brooke McDonald. So happy to find a way to reinsert ourselves or reinsert myself into that story and to support it. They've done a tremendous job finding, as I said, something that's world class. And we still think that there's potential for them to find considerably more. As you maybe skipped to slide 15 earlier, uh it might have said it is it is a generational asset it's a big company asset i believe there have been something like nine or ten separate investments by bhp and newcrest uh tallying up to about us 250 million i've got them to their current 13 and a half percent ownerships in the company uh the merger stone uh sorry the merger with cornerstone uh is a very logical step in uh in the progress of of that asset um And, you know, huge upside. You know, when we looked at it, obviously, when the PFS, the PFS that's out there only uses the reserves, that's 20% of the ton. It's the high grade core of the asset. It's amazingly, shockingly continuous, that high grade core. but that still leaves over 2 billion tons of additional mineralization that once the CapEx is spent and paid for, we think has a part to play in the story, as well as tremendous exploration upside on that large land package. Nick and his team were first movers in country with the Cornerstone folks as well, and they've locked up a lot of tremendous ground there. So we're happy to associate ourselves with that asset. I won't go through the optionality assets. I think you know them from us on 17, 18. I think on 19, you've seen this from us as well. The free upside in our story that's continuing to unfold is tremendous. I don't know anybody else that can say they had, you know, circa half a billion dollars of work done on their ground in one year alone that other people paid for. So 25% of our market cap roughly at that point in time. And, you know, that's the effort. The outcome on the right-hand side of the slide has been also tremendous. And we look forward to that continuing with, we know already, additional ounces at Raven. We know, we certainly expect, based on the commentary from Magnico and team, that the ounces will grow at Malarctic. We don't know what all of that will look like in totality over our portfolio, but we certainly expect the level of work and intensity that our partners are putting into their core assets that we share with them to continue to be high and for our shareholders to benefit from that quite significantly. So that's just the, I guess, 20-minute updates of the portfolio. And I will pass it on to Fred, who is, I guess, the star of the show. The accounting is the star of the show today with a much more simpler offering. So, Fred, I pass it over to you to finish up.

Thank you, Sadiq. Bonjour à tous. Bonjour à tous. Merci de vous joindre à nous ce matin pour la présentation de nos résultats du troisième trimestre. Good morning, everyone. Thank you for joining us today. So we are very pleased to finally present you with a simpler set of financial statements following the consolidation of Osisko Development as of September 30th. The entire financial statements now present the assets, results of operations and cash flows of the royalty and streaming business with a single line item in the statements of earnings and cash flows representing the net results of a Cisco development for the period, being the discontinued operations. The comparative results have also been restated to reflect the deconsolidation. We'll have a similar set of financial statements at year end, but starting October 1st, these discontinued operations will only be presented for the comparative figures. Do not hesitate to contact us if you have any questions about our simpler financial statements, and we'll be happy to guide you through them. If we start with page 21 of the presentation, we recorded revenues of $53.7 million this quarter, compared to $51.5 million in Q2 and $50 million in Q3 of last year. This translated into cash flows from operations of $51.1 million. which compared to $44 million in Q3 of last year, a 16% increase. On page 22, net earnings from continuing operations, which, as I said, represented the royalty and streaming business, were $28 million or $0.15 per share compared to $23 million or also $0.15 per share in Q3 of last year. Adjusted earnings were almost $26 million, or 14 cents per share compared to 23 million last year or 14 cents per share as well. On page 23, you have a summary of our quarterly results, including 23,850 GOs in Q3 of this year compared to 20,000 GOs in Q3 of 2021. A gross profit of 35 million compared to just below 34 million in 2021. and strong cash flows from operations of $51.5 million this year, and for year-to-date, $126.5 million. On page 24, we present a breakdown of our cash margin. The cash margin for our royalties reached $34.4 million. The cash margin from our streams was $15.3 million for a quarterly record of $49.3 million, or 92%. Year to date, the total cash margin reached 145 million. On page 25, we show the progression of the dividends that we have paid to the shareholders since the creation of the company. Our current yield is approximately 1.3%, 1.4%, and $215 million have been returned to our shareholders in addition to over $100 million used to repurchase a total of 8.1 million shares under our NCIB programs. And finally, on page 26, you'll find a summary of our financial position. Our cash balance at the end of Q3 was $200 million. We held investments having a value of $288 million, including our investment in Osisko Development valued at over $200 million. Our debt stood at $200 million. We currently have $750 million available under our credit facility, including the accordion of $200 million that was increased in September. We've also acquired a total of 1.3 million shares in the quarter. for $16.5 million for an average acquisition price of $12.77. So in summary, we've had record deliveries in Q3, as Sandeep mentioned, which allowed us to generate strong cash margins and record operating cash flows, and we expect the next quarters will continue in that direction. I will now turn the call back to Sandeep for questions.

Or yes, over to you, Operator. Thanks, Fred.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Trevor Turnbull from Scotiabank. Please go ahead.

Yeah, thanks for taking the question and congratulations on the sole gold deal. It appears to have been a good one judging by some of the comments from their shareholders. I wanted to ask about a couple of the assets that are expected to start contributing soon. I was wondering how quickly do you expect deliveries to ramp up from CSA Cobar in Australia And then I wanted to know if you had any update on when we might want to factor in San Antonio.

Sure. Morning, Trevor. So, yeah, look, I think that was a win-win for both. We were certainly happy to step in. Obviously, the treasury at Solgold was running down. That overhang was a problem. So we were happy to step in there and assist that company and that asset. You know, as I said, it's one that we know quite well. We've looked at it. We watched it for a long time develop. And to be quite honest, I think in the last few years, it was probably one of the few that I felt like we might have missed as we were internally focused in 2020, kind of cleaning ourselves up a little bit, but certainly happy to rectify that situation. On CSA, look, I think, Trevor, as I've said a number of times, it's contingent on them, on MAC, on the SPAC, including that transaction. The world is different. The copper world is different now than it was in March, although they've been buffered a little bit on that by the Aussie dollar. But we really like that asset. I know we've got a motivated buyer and a motivated seller there. So it's a function of them advancing a pretty complicated transaction with senior lenders, finance years, ourselves, and then ultimately the equity piece. The good news is I think they're at that, you know, whatever you want to call it, starting line or finishing or finish line in terms of putting it all together. So our hope is they can complete that successfully. And if they do, timing wise, you know, that that should be an early Q1 opportunity. type event and obviously it's in production so uh so geos would start flowing thereafter but uh they've got that last hurdle to clear essentially um yeah sorry yeah that's great go ahead if there's a follow-up to that no no follow-up i was just yeah just going to remind you about san antonio yeah yeah no no worries On San Antonio, really, I think you'd know that there's small-scale production from the stockpile there, which is just kind of a here-and-now type event. The bigger catalyst there is the permit for the new, the larger oxide deposit, and then hopefully some sulfides thereafter, but at least initially the oxide deposit. So that's what Cisco Development is waiting for, is that permit. Thereafter, I think things can move pretty quickly. It's not a large or complicated mine. It's not a large or complicated development scenario. So yeah, that's the catalyst. When will that happen? I don't know. Mexico has, in all honesty, been tougher from a permitting perspective. not really just in terms of timelines and getting people to do things and bureaucrats to sign on the dotted line. Our hope is that will come in in a manner in 2023 where we can start to see some stream ounces in 2023. But I can't quite yet tell you when, but once it does come in, I think things can move pretty quickly thereafter.

Great. I appreciate that. Maybe just one other question. If you could give me maybe a little bit of background on Lydian. I know that when they went into creditor protection that you ended up with Orion with that project. And I just wondered, in addition to your original interest there, is there potentially some upside for you if someone comes in and wants to put that into production As a vendor, is there some potential upside that we should think about from that aspect as well?

Sure. Yeah, look, you're right. We did largely ourselves in Orion kind of take that asset private to protect it for them. The crux of it is the debt for us. It's the stream, the gold and silver stream that we're protecting, one that is sizable for us. And I'd remind you, an asset that is somewhere between 70% and 80% built with the potential to, you know, roughly do 250,000 ounces a year for, for a long time. So it's a, it's a prize. It was important. We protected it. It's been pretty minimal burden for us to do so. And all the while we've been working on finding the right partner to come in and finish that, finish that build at a point where, and, and, and, and improve the situation in country, which I would tell you, the team there has done a tremendous job. They've got unfettered access, have had it since, September, I want to say 2020, and have all the permits in place to move. So just really need the funding partner and the funding slash operating partner to finish the job. In terms of, you know, can it be more? I guess, theoretically, yes. You know, it's already pretty sizable for us. I think it's already a healthy size, our streaming on the assets. So we're comfortable with that. I think it's a matter of protecting that asset more than growing it. And if we can reactivate something chunky that people have written off to zero for us, that's been our objective. We've been working on that, as I said, all the time. Some of it needed some time to heal, if you will, the situation in the country, and that's happened. The social license has improved dramatically. And I think people are starting to recognize that. Don't know how many people have picked it up. So just to kind of clear the decks for everyone, because I have gotten some questions on it. There was a UK company, Chirat, that put out a press release a couple of weeks ago talking about how they were in discussions. It may not lead to anything, but, you know, an example of discussions that are ongoing. And all I can say is we continue to have those types of discussions and will continue to have them until we find the right partner to come in and finish the job for us.

Okay. I appreciate that. Thanks, Cindy.

No problem, Trevor. Thank you.

Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the number one. presenters. There are no further questions at this time. Please proceed.

Perfect. No, thank you. Again, thanks for your time. Busy morning, so let you get back to your days and a more bullish gold sector out there. So thanks again. As Fred mentioned, if you do have any follow-up questions for us, please feel free to reach out. Thanks so much.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and ask that you please disconnect your lines. Thank you.