OR Royalties Inc.

Good morning, ladies and gentlemen, and welcome to the Cisco Gold Royalties Q4 2022 Result 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 this call is being recorded today, February 24th, 2023 at 10 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 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 quatrième trimestre 2022 de Rendevances Aurifères au Cisco Limité. Après la présentation, nous procéderons à une séance de questions et réponses. Si vous désirez poser une question, veuillez appuyer sur l'étoile suivie du numéro 1. Veuillez prendre note que cet appel est enregistré aujourd'hui le 24 février 2023 à 10 h 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 de la finance. J'aimerais maintenant céder la parole à votre hôte, M. Sandeep Singh.

Thanks very much, Joelle. And thanks to everyone online with us this morning. I look forward to walking you through what was a very exciting quarter and a very exciting year for us in 2022. As I do, I will be referring to a presentation that's on our website, if you haven't picked it up already, on the main page, just on the left-hand side. If you hit Q4 in 2022 results, it'll take you to it. And I'll be referring to page numbers as So I urge you to review that disclaimer on slide two. So looking at slide three, you start, as I said, 2022 was a very important, I'd say, frankly, pivotal year for us. We made significant strides on a number of fronts, many of them listed on this page. If we start with the simplification, the ongoing simplification of our business, You know, 2022, in particular, the third quarter, took a massive leap forward with the deconsolidation of our financials with Cisco Development Corp. You know, it was just an accounting issue, but it was a meaningful one of kind of combining a company that generates cash flow all day long and one that is advancing its projects and investing in the future. The growth just didn't leave a recognizable entity. So happy to have that situation behind us. In terms of the portfolio of assets, our asset base continues to strengthen. We had three consecutive record quarters on most of the things that matter to us from a royalty company perspective. And we'll talk about what the outlook looks like for us as we move forward. We also reset the balance sheet in spring of last year. I think we reset the balance sheet for our next wave of growth and de-levered at the right time. We continued our consistent trend of returning capital to shareholders. In aggregate, 63 million Canadian returned to shareholders last year, really almost exactly two-thirds of that via dividends and a third of it via our buyback program. And we'll show you a slide later on, but over the last five years, we've consistently done that, essentially returned a third of revenues or a third of every dollar derived from an ounce delivered to us back to shareholders through a combination of dividends. And then we think that sets us in a pretty select company. We continue to have a tremendous amount of free upside and optionality playing out in our portfolio. Again, through the presentation, we'll touch on a few examples of that. We look forward to being able to tally the amount of work that our partners did in 2022 and share that with you. But certainly we're seeing the impact of that work kind of all around us. With respect to our largest asset, our flagship asset at Malartic, the consolidation that Amigo Eagle is currently underway, very close to completing in terms of buying the second half of that asset. is a very important catalyst, one that we'll spend some time on talking about today. But, you know, I think even last week in terms of their release and some of the commentary that they're guiding towards in terms of what the synergies can be with them now owning 100% of Malartic, what they mean for us is quite impressive. And then as we've talked about a number of times, 2022, we didn't really see the benefit of Malartic some pretty important step changes at assets like Mantos and Eagle. We do expect to, we'll start to see the benefit of that in 2023. Those aren't the only assets that we have that are undergoing, you know, either material ramp ups or expansions over the next few years. Island falls into that category. Lamac falls into that category. There's just an awful lot of good work being done on our producing asset base. lengthening it and growing it, which underpins I think this company for a long time to that. there's an exceptional amount of growth. 2022 saw a 12% increase over our GEOs delivered to us over the year before. We put out our guidance, which shows a meaningful uptick again this year and really a sustained level of growth for quite a long time with the existing asset portfolio. And then in 2022, we did not just four, four larger transactions or a few smaller ones that spliced in, But we were very happy with the manner in which we were able to allocate capital in 2022. Just finishing on that growth box, if you will, I think the growth for us is very multi-layered, I would say. It's, again, those existing producing assets that are getting stronger. It's new assets that are coming into the mix for the rest of the decade. It's that optionality that I talked about of our portfolio highlighting some pretty hidden gems. And then it's the external growth, all of which I think is working well for us. I won't spend too much time on slide four. That's just a reset. We love showing that slide. We'll do it every chance we get because I think it's important. Almost alone, it kind of tells the story of a Cisco in terms of commodity focus, obviously, geographic focus, partner quality, asset quality. And then on the top right-hand side, we've taken the step of just highlighting, again, some of those assets, core assets to us. Many of them are steady state and continuing to do a good job. And then an additional significant chunk, some of the biggest ones, are going through step change improvement. On slide five, again, these are names we've talked about in terms of the recent acquisition story for us in 2022. I won't go through the specific names. We can certainly come back to them later. But I will remind everyone that all four of these, in fact, the smaller ones that we did as well, were all bilateral underscore all, not a single process on that list. I think they were all fair transactions for us and our partners. Good jurisdictions, good operators, partners, big upside in all. And I frankly think significantly better returns than we've seen in pockets of the sector for the last couple of years. And frankly, that's what it takes for us to transact. All of those, all of the above. And if we don't see that, we'll be very patient, extremely patient, and we'll continue to return capital to our shareholders. But if we do see it, I think we've shown the conviction to follow through on things that we believe in. Moving to slide six. Again, I think we have to spend a bit of time given the importance and given the kind of recent story that continues to strengthen. I've said this before, I mean it, you know, literally every time we hear from our partner here at Agnico, the story is getting better. um obviously it's an important asset even if it was just what it was kind of put on paper as a couple years ago kind of transitioning to 500 600 000 ounces a year from the underground that's the plan that's how most people currently think about it i would wager that's how most people currently model it from an analyst perspective and that in itself is is great uh that too i would remind you is only based on half of the current 15 million ounces that are available underground 2022 saw an important year in terms of infill drilling, and that's on the next slide. If you want to jump ahead, basically just over 6 million ounces moved into an aggregate in the M&I category, so pre-material lift of inferred into M&I, the overall resources. stayed the same, or largely the same, from the drilling in 2022, but happy to see the infill drilling improve the M&I. Overall, if you look at this last bullet, the extension drilling that they've done has been very productive with the boundaries of the deposit, if you will, growing in both directions to the east by 1.7 kilometers to the west by 500 meters. So quite a big footprint that currently isn't in any kind of category in terms of resources. And I think certainly my expectation, our expectation is that after another similar year of drilling, kind of a third in a row, 164,000 meters envisaged in 2023, not only will we see that continued trend of category improvement, but also hopefully that'll be the year where we see an uptick in uh, with enough infield drilling or enough space, a tight, a tight enough spacing in that footprint to add more ounces. And I think that's, if you read the release from Amico last week, that certainly seems to be what they're pointing to over the course of 2023. Uh, so that is a phenomenal story. Uh, if you look at the next slide, slide seven, um, you know, then you turn your attention to the spare 40,000 tons of, uh, per day of capacity in the mill that will be in place by 2028 or available by 2028. So we're certainly looking forward. I'm looking forward to sitting down with our friends at IGNICO next week to make sense of everything they said in their Thursday afternoon release, because frankly, it was a bit head spinning, but overall, all of it was extremely positive for us. I'm sure you folks would. I certainly would like to get some more details on that plan. But I think it's, you know, the upshot of it is, you know, the Canadian malarctic mail with 40,000 tons roughly of spare capacity later in the decade is the center of gravity for the Abitibi. And I think what's, uh, what the next leg of that, uh, and that's, that's kind of given, I would imagine most people have in their minds, but when you take into account the rail line that runs through, through the mail, basically through the property, all through all of these assets that you see on the bottom of side seven and the MTV on the Ontario and Quebec side, that significantly, obviously, based on the commentary, increases the area of influence, if you will, or the catchment area that that mill can benefit from. To have a scenario where Our partner is talking about potentially 500,000 ounces of annual regional gold coming into that mill is a huge benefit to us, not just because of our 40 cent per ton mill royalty, but also because many of the names that they mentioned, we also have 2% royalties on, whether it's Upper Beaver, Wish to Think, Could Go East. as opposed to west to Macassar, that shows you that center of gravity that Canadian Malartic will become once it has spare capacity. Or whether it's talking about things like Upper Canada, obviously, AK is already in the mix at Macassar. But essentially, most things, not all, but most things that were discussed in that update have significantly important implications for us. And so we look forward to getting maybe not immediately, but over the span of this year or some period of time, more clarity on what that looks like. It only could mean positives versus, I think, the way most of you on the line from the analyst community certainly look at us and value us. And I would imagine the same is true on the investor side. And that was without really even talking a whole lot about additional mill feed from Canadian Malartic itself, from the Odyssey project itself. Again, 20 years, give or take, two decades of production based on half of the underground resources. Most of that is now in the M&I category, I would imagine, and not inferred anymore. So not only will drill spacing, I think, add more mine life, I think the extension drilling will add mine life. It's our assessment, my belief, that before too long, it will also add throughput. So that, you know, obviously it's preferential for us to see our partners putting through up to 5% NSR material through that mail as opposed to even 2% or just benefiting from the mail royalty. So that is tremendous news flow for us. It's recent, you know, dates back to Thursday, I think it was. And so I think more visibility on that, more understanding of all that will only strengthen the story. On slide eight, I'll speed up here a little bit to get to the actual financials. On slide eight, I think we've talked about already MANTOs, maybe one layer deeper. We do expect a significant uplift for MANTOs this year. The deferral from 2022 into 2023, not a big deal, but we're certainly happy and looking forward to seeing those geos come through. I think Q1 will still be a little bit volatile, or at least we're assuming it will. And thereafter, we expect the seed deliveries steadily pick up. So that's good news. And then the commentary around the next expansion and the study that will come out in H2 of this year, again, I think feels very, very positive. So we'll wait for our partners at Capstone to make that determination. But everything we're seeing and hearing, I'm sure the same is true for you, bodes well. With respect to Eagle, again, You know, we saw collectively with us and them a tougher 2022. We were all expecting them to take a step forward. It was turned into a step sideways and back a little bit, if you will. The guidance for 2023 is positive again. And the study that they put out and that trend to get to essentially 200,000 ounces, which is what they're New mine plan press release, not report, but new mine plan press release today highlights or depicts, I think, is still a very positive place to end up. They need to do the work to get there, but at first glance, that study looks positive. A little bit higher cost for them, obviously, but we were pleased to see that the total ounces, in fact, a little bit higher, and the average production still in that 200,000-ounce range that they've talked about. Project 250, probably a discussion for another day at best, but I think even ending up at 200 steady state is a win right now and is a step-change improvement for us. So we look forward to them making progress on that. And with respect to Eleanor... At Newmont, again, just last night, I think it was overnight or yesterday morning, Newmont came out with their numbers. And we were quite pleased in terms of the commentary around increased productivity, increased flexibility. 2022 saw 250,000 ounces produced and to be pointing to 265 to 295 for those reasons, I think is good news. So we'll see how that flows into the year. On slide nine, again, good things happening across the portfolio, whether it's the ongoing expansion work at Island that will fully kick in by 2026 and in time will mean current production being between 120,000 to 130,000, 135,000 range, I believe it was, to more than doubling. but also more of that. Currently, none of that production comes from the 2% to 3% royalty ground, and time more will. So that, not only the expansion, but their transition onto our better royalty grounds will be a massive benefit to us. In 2022, we saw a little bit of a dip from LAMAC. Their guidance for 2023 shows the opposite, a significant improvement. So good news happening for us on those assets as well. We're spending some time on 10, like $10. I noticed this this morning, it says entering an important phase of growth. I think we've entered it. I think we've seen now a step change that hopefully should maintain and strengthen in terms of how many geos we're getting on a quarterly and annual basis. Again, 12% growth last year without our core assets hitting their full stride. Guidance this year of 95 to 105,000 ounces. That includes growth from our existing asset base. It also includes the assumption that the CSA transaction will close here in the very near term, at least the silver component. That's the only component of that deal that's certain, if you will, and has a February 1st effective date, so 11 months of silver from CSA. We haven't factored in either into the guidance or the outlook the copper stream potential because we don't know how much, if any of that will come in, but certainly we're optimistic that we'll be getting a fair chunk of it. But until we know what that looks like, we'll keep it out of the guidance. And then an outlook five years from now in the calendar year 2027 of between 130,000 and 140,000 ounces. So again, that sustained level of growth on assets that we have. There has been, I think it's obvious, and it happens in our portfolio, some slippage for sure. I'll point to permitting at San Antonio. We have been talking about seeing permits at San Antonio in 2023. Sorry, maybe as early as the end of 2022. Obviously, very few people, if any, are getting permits out of Mexico right now. So we still hope that that will be something that can move forward this year. Maybe it has to wait till an election in 2024, but we still have plenty and still see plenty of time for a catch up. That is a fairly simple. or a simpler project from a mining perspective. So caught in that five-year time horizon for sure is our expectation right now. Similarly, at back 40, probably a slippage of a year, that one. I think we saw coming in in 2026. Maybe it comes in in 2027. But the slippage had to do with delays in feasibility study and then still have to get re-permitted. So some slippage, but that's the beauty of a portfolio as deep as ours. because there are other things that are coming on. Important to point out as well that in that 2027 year, we do see Renard, based on the current plans, peering out the diamond stream there, although there are resources currently in place and a healthier entity that could potentially extend that. just assume that it's not the case to be cautious on that asset. Obviously, we always want to be cautious on that asset because history of it. But, you know, five years is a long time. And on the current trajectory, there's certainly an expectation that things can potentially extend based on resources that currently exist. And if it doesn't, then that coming out of that bar is can be replaced by a sliver of production. I would emphasize a sliver based on some of the things that are in that optionality category. Any combination or subset of initial production from Hermosa or Maramaka or West Kenya or even Pine Point, you take any couple of those and that can make up the difference. So really pleased with the way things are shaping up. Nothing in the mining sector is a straight line, but very happy with the progress that our partners are making. And again, when I remind you about, you know, what this company looks like in terms of existing producing assets, getting stronger with the one exception of a short life asset in Renard. Otherwise, all our core assets really have a long runway in front of them and they're getting bigger, not smaller, many of them. And the new assets that are coming on, strengthening us as each one comes onto the portfolio. Very pleased with this growth trajectory. That growth stays in great jurisdictions and we'll look to supplement it as things progress. I will point out It is on this just because I was asked a couple of questions. I wasn't going to do it otherwise. But we're also doing good work. We're seeing good work progress at a Mulsar in Armenia. We we try not to talk about it until there's an ultimate end game there. But I think everyone realizes that we've been trying to to reactivate that stream. It's a really important asset that comes in. north of 200,000 ounces a year, and it was about 70% complete two years ago. So yesterday, the folks that picked it up would have noticed that the government of Armenia had a trilateral agreement signed with the company as well as the Eurasian Development Bank for $150 million debt piece into the assets, which goes a long way towards fully funding the rest of the construction. Still need the right entity to come in there and finish that for us. But a great step and the government squarely behind the asset, making a lot of positive commentary around it and the need for it to move forward. So I would call that progress. I would call that significant progress, but we're not factoring that into any of our numbers until it's a done deal and really only mentioning it because I was asked. From start to finish, once that actually moves forward, that's probably an 18-month to 24, at most, rebuild or completion of build cycle. So hopefully that's something that is hitting this five-year outlook sooner than later. On the next few slides, we've taken a different approach at highlighting some of the catalysts in our portfolio and Somewhat chronologically ordered, somewhat not, but all the things that are happening in the next year plus, 2023, 2024. I talked about the first four, so I won't talk about them again on this page, but underscore the fact that these are real assets. Emphasis on the real. These are real catalysts. We're not stretching to come up with good news about our portfolio. Even if you took a few of these stack patterns alone, they would be impactful to our company. If you take them in aggregate, it's an embarrassment of riches. So, you know, if we're talking about the progress at Windfall, obviously with the feasibility, the power deal with the Cree, you know, this is an asset that has a ramp down somewhere well below 600 meters. It's got 15 rigs on it, 13 plus kilometers of underground development. That is a phenomenal story for us that's continuing to take shape. We're bullish on zinc. I personally am bullish on zinc, at least the right assets. And I think we have two of them in Hermosa. We look forward to the FID decision mid-year. That's an important asset for us. At the Cisco Metals, we were very pleased to see Appian, the private equity group out of London, step in and make a essentially $100 million investment into that project and company over the next four years to earn up to 60% of it. $75 million of that will go into the assets. on a somewhat expedited basis, it's a lot faster advancement, uh, to FID than a Cisco metals could have done on their own. So, uh, that's, uh, supercharging was an important asset for us based on the old PA, uh, to put into perspective, that could be 9,000 geos, depending on your commodity price assumptions, 9,000 geos a year, uh, once in production. So to have that starting to, to, to gain momentum is, is excellent. Corvette's another one I'll talk about, and I'll probably skip the next two just to get to, uh, Get the Q&A faster. But, you know, Corvette and the 2% lithium royalty that we have on what looks like most of a potential Patriot battery metal deposit doesn't, you know, there's no resource yet, but looks like covers 70% of what might be meaningful, basically just missing a corner. You know, that's turned into, over the span of a year, a microcap company to a $1.3 billion entity. Long way from production, obviously, but some of the most important and impressive drills I've seen in the lithium space. I think the best run I remember is 25 meters of 5% lithium oxide. That's direct shipping for, basically. So that was in the back of our portfolio. We basically paid nothing for it. We didn't pay anything for it. And we have a 2% royalty on that entity that shows you, again, the optionality of the royalty sector. And then I think more specifically the optionality of our portfolio. So good things happening. Again, I'll jump to it, but good things happening on all three of these pages. I'll throw it back now to Fred Ruel to walk you through the specifics around the year and the Q4, and then I'll be back with you to just tidy things up.

Thank you, Sandeep. Good morning. Thank you for joining us today. Let's start with some highlights on page 15 of the presentation. So as discussed, record 89,267 GLs in 2022, an increase of 12% over 2021. We add record revenues from royalties and streams of $218 million compared to $200 million in 2021, which translated into record cash flows from operations of $175 million compared to $153 million in 2021. which is a 14% increase. Our cash margin was stable at 93%. We have increased our accordion feature of the revolving credit facility. We have extended the maturity date as well to September 2026. We have repaid our converts at the end of December using $150 million from our cash balance, and we drew the remaining $150 million from our credit facility. We've also repurchased 1.7 million shares in 2022 at an average price of $13 Canadian. On page 16, we present our geos by asset and by commodity. Gold represented 69% of our geos in 2022, silver 19%, and diamonds and other commodities 12%. On page 17, we present the growth in our revenues from royalties and streams and the growth in our operating cash flows compared to 2022 compared to 2021. If we move to page 18, net earnings from our royalty and streaming business were $85.3 million or $0.47 per share compared to $76.6 million or $0.46 cents per share in 2021. Adjusted earnings amounted to 111 million or 62 cents per share compared to 94.4 million or 56 cents per share in 2021. Of course, 2022 was an annual record. On page 19, we have a summary of our quarterly and annual results. including 25,000 GOs for the fourth quarter for a total of over 89,000, as previously mentioned, compared to 80,000 GOs in 2021. Gross profit amounted to $43 million in Q4 for a total of $150 million in 2022, compared to $139 million for the previous year. Adjusted earnings in Q4 reach $34.9 million or $0.19 per share compared to $23.8 million or $0.14 per share in Q4 of 2021. On page 20, we present a breakdown of our cash margin. So the cash margin from royalties reached $40.8 million in Q4. and $143 million for the whole year. The cash margin from our streams amounted to $17.4 million in Q4 and slightly below $59 million for the year. For a record $201.7 million in 2022 compared to $187 million in 2021. On page 21, we present the value of shares buyback and dividends paid in function of the average gold price on an annual basis. During the last five years, we have returned in dividends and share buybacks approximately one-third of our GEOs. And finally, on page 22, you'll find a summary of our financial position at the end of last year. Our cash balance was at $90.5 million. We held investments having a value of just slightly below $400 million. Our debt stood at $150 million following the repayment of the converts. We currently have $600 million available under our credit facility, including the accordion of $200 million. So in summary, another great quarter led by strong deliveries and a strong gold price. The year 2022 saw record quarterly and annual cash margins and operating cash flows. We've completed the realignment of a Cisco as a pure royalty and streaming company. And I will look forward to continue to grow in 2023 and in the coming years. I will now turn the call back to Sandeep before we open the lines for questions.