OR Royalties Inc.

Good morning, ladies and gentlemen, and welcome to the Osisko Gold Royalties Q3 2023 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 this call is being recorded today, November 9, 2023 at 10 a.m. Eastern Time. Today on the call, we have Mr. Paul Martin, Interim Chief Executive Officer, Mr. Frédéric Cruelle, Chief Financial Officer and Vice President, Finance, and Mr. Ian Farmer, Vice President, Corporate Development. I would now like to turn the meeting over to your host for today's call, Mr. Paul Martin.

Thanks very much, operator. Good morning, everybody, and thanks for joining our call. This presentation is available on the website as well as through the webcast. And firstly, I'd like to address the organizational changes and then proceed to the quarterly results. Last night, ASISCO announced that Mr. Sean Ruzen has stepped down as chair of the board, continuing as a member of the board. In conjunction, it was also announced that Mr. Norm MacDonald will be taking on the role of chair. In addition to the changes made at the board level, Cisco's CEO Search Special Committee has concluded its search for a full-time president and CEO. And as you have all seen, Jason Attu will be assuming the position once he completes the necessary transition from his current leadership role at Liberty Gold, but no later than January 2, 2024. And first of all, speaking on behalf of the board and all of our employees is with a huge amount of gratitude that we acknowledge Sean today for his vision, drive, and emotional capital that he's invested in the company for nearly a decade, including the spin-out creation of a Cisco Gold Royalties back in 2014. And over this period of time, he has put everything he had into this company. And Sean is exactly as he would self-describe himself, a multi-directional thinker who looks to challenge the norms and is not comfortable sitting on his hands. From the creation of the Cisco Gold royalties, with its 5% NSR royalty on the Canadian Malartic mine, arguably the sector's crown jewel precious metals royalty asset, all the way to where the company is today, with 23 producing royalties and streams and over 180 assets. There are few in this industry who have the conviction, the perspective, and I would say, quite frankly, the guts to do what Sean has done and continues to do. And he should be applauded for all of these qualities. And let's not forget, he remains as one of the top mine developers in this country and CEO of Asisco Development, where we are the largest shareholder and where they are focused on the Caribou development asset, where we hold a 5% royalty. And I personally would also like to thank Sean for his full support over the past few months during my time as interim CEO. Secondly, Norm MacDonald will be taking the role of chair following this appointment to the board at the last day AGM. I've known Norm for a long time, going back to his days as a natural resources portfolio manager at Invesco. Norm brings a fresh set of eyes and is an experienced and committed individual who has extensive connections within the mining industry. I know he will be a strong leader of the board going forward and a great partner to the incoming president and CEO. So this serves as a natural segue to the other major piece of news from last night's release. The appointment of Jason Attu is the new president and CEO of Asisco Gold Royalties. And in my opinion, Jason will make a fantastic addition to the group here at Asisco. And it's very easy for me to speak about Jason as I have both a business and personal connection with him, which takes back to my days at Detour Gold. From 2009 onwards, he was our lead investment banker for seven years and was instrumental in garnering the bank's support in financing the project, which today is now the biggest operating gold mine in Canada. I watched Jason back then as he made a bold decision to leave the bank and move to Goldcorp, first as VP Corporate Development and then including the CFO position until Goldcorp was acquired by Newmont in 2019. From there, he took on the President and CEO role at Gold Standard Ventures, which was subsequently acquired in 2022, and then most recently took on a second President and CEO role with Liberty Gold. All in all, what I would call a perfect mix of transactional experience along with leadership roles at both large and small mining companies along the way. Cisco Gold Royalties will be in strong hands going forward with the combination of Jason and the individuals that already make up what I believe is a very strong and capable management team. So, like those on the call, I will be watching with a keen interest. And now we'll move to the Q3 release. So please note that there are forward-looking statements in this presentation and actual results may differ. All amounts are in Canadian dollars unless otherwise noted. So on the highlights for the quarter, we're satisfied with our overall performance in Q3, both from a GEO's earned perspective and from a transactional basis. 23,292 geos earned in Q3, comparable to the third quarter in 2022. With just over 71,000 geos earned in the first nine months of 2023, ASISTO is now trending towards the lower end of its previously published guidance of 95,000 to 105,000 geos for the year. We're expecting an improved fourth quarter at some of our key assets to finish the year. which will be offset partially by the shutdown at the Renard Diamond Mine. Achieving a final number towards the lower end would represent an approximate 6% year-over-year growth. We have record revenues of just over $62 million and maintenance of our year-to-date cash margins of 93%. The company had just under $71 million in cash at the end of the quarter and net debt of $245 million. With respect to our ongoing commitment to return capital to shareholders, the company declared and paid its quarterly dividend of $0.06 per share in Q3. And on the recently closed transaction front and a subsequent event to the quarter, ASISCO announced last week the acquisition of the Nambini NSR Royalty, demonstrating our ability to uncover and source accretive precious metals transactions. We're delighted to add Nambini as an asset that will make a meaningful contribution to ASISCO's near-term growth. On the financial performance, the increase in record quarterly revenues largely followed the fact that while GEOs from the recently closed CSA SilverStream transaction were booked in the second quarter, revenues from sales were received in the third quarter, resulting in a new quarterly high watermark of just over $62 million. We had a decrease in cash flows from continuing operations in Q3 as compared to the comparative quarter in 2022, despite being impacted positively by higher cash margins, but due to increased interest charges and higher G&A costs, which included severance charges. As for the net loss in the quarter of 11 cents per basic common share, I think it's best to focus on the quarterly performance rather than the change against the comparative quarter. And the major contributors for the loss were charges to the carrying value of the Renard stream and loans. These balances totaled just over $32 million before tax recoveries. The result is the carrying value of this asset has now effectively been written off, subject to an immaterial amount related to the potential remaining diamond sales. In addition, the quarter included charges for severances and accelerated stock-based compensation, totaling approximately $6.5 million, related to the departure of the president and CEO and the termination of the executive role for the former chair. Adjusted earnings of $0.12 per basic common share were marginally below the comparative quarter in 2022. Moving on to our royalties and streams, during the third quarter, the company had 23 producing assets, including ongoing contributions from ASISCO's newest cornerstone asset, the silver stream on the CSA mine located in New South Wales. And recall, the associated and larger copper stream will kick in for ASISCO in June 2024. Our geos earned come predominantly from Canada, and we derived over 90% of our geos from precious metals, being gold at 66% and silver at 24%. And I'll add some comments on some of our specific mines before speaking about a couple of other assets in greater detail. Victoria Gold's Eagle Mine continues to perform well in 2023, a key bright spot for ASISCO. Despite a two-week wildfire evacuation during the third quarter, the mine is still in great shape to attain its 2023 annual guidance of 160,000 to 180,000 ounces. The strong performance at Eagle has helped offset some of the ongoing modest disappointment in Capstone's Mantos Blancos operation, where milling rates continue to lag phase one expansion design levels. Capstone is now pointing to early 2024 for resolution of the plant issues once the delivery and installation of the new handling and pumping infrastructure relating to tailings water management are completed, and at which time Mantos Blancos is expected to consistently deliver nameplate three-click rates. The only newer mine was impacted as operations were temporarily suspended for approximately six weeks from early June to mid-July due to the proximity of forest fires, which impacted the mine's Q3 production and RGO deliveries. With the mine now back up and running safely, Cisco is expecting a rebound from the operation in the final quarter. And almost like a broken record, the Canadian Malarta complex had yet another impressive and predictable quarter and remains the company's most significant contributor to GEO's earnings. And further there, in terms of the underground progress at Odyssey made during the quarter, Agnico Eagle completed and commissioned the Pace Backfill Plan, which should see underground mining rates improve to complement the majority of the current ore being sourced from the Barnett open pit. Also on the good news front, Metals Acquisition Limited had a solid quarter with record ore throughput under its ownership during the month of July. Drill results from CSA released during the period also continue to impress with some notable hits including over 50 meters at 8.9% copper and 36 grams per tonne silver and just under 21 meters at 14.4% copper and 61 grams per tonne silver. We continue to follow the new operator's impact on the operation, and we've been impressed so far by their ability to unlock value. So let's talk a bit more about Stornoway and the Renard mine, which most of you would have noticed that on October 27, there was an announcement from Stornoway Diamonds that the mine operations were being suspended immediately. The decision was made in large part due to the recent precipitous fall in rough diamond prices, which have shown no sign of improvement in the recent weeks. The high-profile news of India halting imports of rough diamonds has also exacerbated the recent trend of falling prices. And on the same day, Stornoway also announced that it is in the early stages of a CCAA process. which will include soliciting investment and a potential sale. While ASISCO's October 11th preliminary GEO delivery press release highlighted at the time that we did not expect Renard to contribute any GEOs in the fourth quarter, based on subsequent negotiations, we will now see some contribution from Renard during the final three months of the year. However, any amounts will depend heavily on rough diamond prices to be achieved and will be significantly lower than what was originally budgeted. At this stage, given all the moving parts and potential outcomes, it is too early to discuss what things will look like at Renard beyond the fourth quarter. But ASYSCO will keep the market updated on how best to think about this asset when it produces its 2024 guidance and new five-year outlook in mid-February of next year. Now to Nandini. On Monday, October 30th, the Cisco announced it had acquired a 1% NSR royalty on the Nandini Gold Project in Ghana for US $35 million plus applicable taxes and levies. The mine is being developed and will be operated by Cardinal Nandini Limited, the majority of which is owned by Shandong Gold. Mine construction is well underway, with Shandong recently on record stating that first gold from the operation is expected in late 2024. And as shown on the graph on the slide, Nandini will be a significant gold producer as compared to other global primary gold mines currently under construction, with an average of 287,000 ounces per year over an initial 15-year mine life. Asisco is excited to add its footprint in Ghana, a country with strong democratic institutions, and recognized as one of the most prolific and well-established coal mining jurisdictions globally. The Namdini transaction also highlights that there has been no slowing down at Asisco with respect to our corporate development activities, and the company remains focused on adding accretive precious metals acquisitions that can and will move the needle for the company in the near term. And I'm proud of the team for getting this exciting deal across the finish line during my short tenure as interim CEO. For the purposes of this specific presentation, we've included Renard now rounding out our portfolio of 23 producing assets. And as has been highlighted in the past, I would point to those producing mines that are boxed by the hatch lines as they are all either an expansion, extension, or ramp up. helping to underpin our near-term growth profile. And we expect Nandini to add to this specific group of assets by the end of 2024. And along with our high precious metals exposure and exposure to low-cost producing mines, Cisco continues to distinguish itself from its peers due to the depth of its exploration and development assets, which exceeds 180 properties. and is heavily weighted to what ASISCO defines as Tier 1 mining jurisdictions, which includes Canada, the United States, and Australia. Recent global events have all served to underpin our belief that maintaining a high exposure to Tier 1 and well-established mining jurisdictions is more important now than ever. So switching gears a little bit, I'd like to quickly touch on the balance sheet. At the quarter end, we had a net debt of $245 million, placing us in a sound financial position and one that we look to strengthen. As we stated previously, the covenant performance is exceptionally strong on the facility with cash margins of 93%. And on our equity investments held on the balance sheet, we will continue to balance our own need for incremental funding against our perception of what fair value is for the various positions held. So in closing, Cisco remains well-positioned to continue its growth path. Further to this, positive catalysts continue to unfold across the asset base, as indicated in our optionality bar. Assets that will further add to OR's growth towards the end of the decade and beyond. A couple of examples include the upcoming final feasibility study from South32 at Hermosa, now expected to be released to the market in the first quarter of 2024. Ongoing construction milestones at both TZ and Nandini as these two projects work their way towards first production in late 2024. And the results from the Merrimacka copper feasibility study likely also coming in 2024 with the recent appointment of ASENCO Chile to lead the engineering efforts. So having now spent several months in the seat working with the team here, I wanted to make two closing statements. This will be my last quarterly call. Having gotten familiar with the assets and when also considering a Cisco's current relative valuation versus our peers, as highlighted on the final slide in this deck in the appendix, it's my opinion more so than ever that a Cisco should remain investors' go-to royalty company in the mid-tier royalty space as the focus on the company returns to the quality of its underlying assets. And secondly, I have nothing but praise to say about the team at Asysco. This is a high-performing, committed group of professionals, and they have made my short transition here a breeze, and they'll be ready to have Jason up and running very quickly. And finally, I'd like to provide a friendly reminder that we will soon be hosting our in-person analyst and investor day in Toronto on November 14th. where we will have our corporate development and technical teams present to provide a more in-depth presentation on ASISCO's producing, development, and exploration portfolio of assets. Furthermore, those in attendance can expect to receive asset updates directly from some of our key operators. And for those that can't make it in person, a recording of the event will be posted on ASISCO's website shortly after the session. So we'll now open up the line for questions, as well as questions posted on the webcast. And if we don't get to all the questions on the line or the webcast, we'll make sure to respond offline to those who don't make it. Operator, I'll hand it over to you.

Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touchtone phone. 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 Ralph Profodi from Haight Capital. Please go ahead.

Thanks, operator. Good morning, everybody. First off, Paul, I just want to thank you for your efforts and stewardship over these past many months, and it's encouraging to see such definitive clarity on leadership and governance going forward. Thank you. Paul, if I were to think about Q4 results and hitting the low end, it still implies quarter over quarter an uptick in GEO ounces produced. And you mentioned Eagle and Eleanor as perhaps having some Q4 cadence. Just wondering, are there any other assets in the portfolio where you're anticipating quarter-over-quarter strength in a material way?

Well, in discussion with the team, Ralph, I certainly have been told that Malartic tends to finish the year strong, and obviously that has the biggest variable on us. Maybe on a more insignificant area, perhaps there's 1,000 geos from Renard potentially coming, but that is a little unpredictable. We'll wait and see where those diamond sails, whether they materialize or not.

Okay, helpful. Thanks. If I can ask a follow-up on that. Nandini, was that other 50% of the 2% NSR not for sale, or should we consider this as sort of a measured and deliberate step investment as it pertains to capital allocation?

Yeah, that's a fair question, Ralph. These royalties were owned by the community, would be the expression, and only a half of it was available. So that's why we were able to secure the 1%.

Very clear. Thank you so much.

Again, for the people over the phone, if you'd like to ask a question, please press star one. There are no further questions over the phone at this time. Oh, excuse me. We do have one question from Adrian Day from Adrian Day Asset Management. Please go ahead.

Yes, good morning. And again, thank you, Paul, for your efforts. I just wanted a quick question on Renard. Excuse me. In the past, you made an equity investment and worked with it, and that worked out well. But are you thinking of putting any more money into the mine?

I think, Adrian, that's pretty clear at the moment. We were supportive of the CCAA process, and that is not our intention.

Okay. Thank you.

And there are no further questions over the phone at this time. I will turn the call back over to Paul.

Okay. Thanks, everybody. I know it's a busy morning with a number of releases out, so we appreciate you participating. If there are any follow-up questions, you know where to find us, and we're happy to engage. With that, have a great day, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.