OR Royalties Inc.

Good morning, ladies and gentlemen, and welcome to the OSISCO Gold's World Q4 and Year 2023 Results 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 one on your telephone keypad. Please note that this call is being recorded today, February 21st, 2024 at 10 a.m. Eastern Time. Today on the call, we have Mr. Jason Atouk, President and Chief Executive Officer of Mr. Frédéric Ruel, Chief Financial Officer and Vice President of Finance, and Mr. Ian Farmer, Vice President, Corporate Development. I would now like to turn the meeting over to our host for today's call, Mr. Jason Atu. Bonjour, Mesdames et Messieurs, et bienvenue à l'appel conférence des résultats du quatrième trimestre et de l'année de 2023 de Redevance Orifère Osisko Limitée. 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 21 février 2024 à 10 h, heure de l'Est. Nous avons sur l'appel d'aujourd'hui M. Jason Atou, président et chef de la direction, M. Frédéric Ruel, chef de la direction financière et vice-président finance, et M. Ian Farmer, vice-président développement corporatif, J'aimerais maintenant céder la parole à votre hôte, Mr. Jason Attu.

Thank you, Operator.

Good morning, everybody, and thanks for being on today's call. I'm Jason Attu, President and CEO of Asisco Gold Royalties. Having been around to witness the formation almost 10 years ago and subsequent growth of Asisco Gold Royalties, I'm very humbled to be taking the leadership reins of the leading royalty company in the sector and look forward to interacting with all our stakeholders in a positive, constructive manner in the near future. Procedurally, I'll run through the presentation and then we will open up the line for questions. For those participating online, you can submit your questions in advance through our webpage. The presentation is available on the website as well as through the webcast. Please note there are forward-looking statements in this presentation for which actual results may differ. Also, the basis of presentation is in Canadian dollars unless otherwise noted. I'm joined on the call this morning by Frederic Ruel, the company's Vice President Finance and Chief Financial Officer, and Ian Farmer, Vice President Corporate Development, amongst others as highlighted on this slide. When looking at our overall performance for the full year, it is important to note that Asysco booked a record year in terms of GEOs earned and was very busy from a transactional point of view. 94.3 thousand GEOs earned in 2023 representing a respectable 6% growth over the 89.4 thousand GEOs earned in the full year 2022. This number we reported on January 8th came just below the company's 95 to 105 thousand deal guidance released in early 2023. By this time, the challenges faced across our portfolio have been well documented, but are worth a quick recap. A sharp fall in the rough diamond prices, resulting in the shutdown of the Renaud diamond mine, Canadian wildfires, which primarily affected deliveries from Eleanor, and ongoing ramp-up issues at the Mentos Blancos where there now appears to be some light at the end of the tunnel. Despite these headwinds, 2023 marked record annual revenues of $247.3 million and an annual cash margin of 93%, with a record 94% being achieved in the company's fourth quarter. Cisco ended the year with $67.7 million in cash and net debt of just $130 million, after the company used the gross proceeds of $132 million from the sale of the ASISCO mining shares to pay down a revolving credit facility. Subsequent to this, and in 2024 year to date, the company has repaid an additional $30.2 million on the facility, reducing our overall debt, thereby increasing our financial flexibility to carry out accretive transactions. With respect to our ongoing commitment to return capital to our shareholders, the company declared and paid its quarterly dividend of $0.06 per share in Q4, making its 37th consecutive dividend with over $268 million returned to shareholders from these distributions. The company has had a stellar year as it relates to its disciplined deployment of capital into new transactions, with some meaningful additions to its already strong portfolio. In summary, Cisco Bermuda closed both the CSA silver and copper streams in June 2023, followed by execution on the Gibraltar stream amendments, silver stream amendments by Cisco, and then also the acquisition of gold and copper NSR royalties on Costa Fuego. Finally, in the fourth quarter, the company closed the acquisition of the 1% NSR on Nandini for US $35 million. With other smaller transactions rounding out the whole list, 2023 provided yet another demonstration of our team's ability to uncover and source accretive precious metals transactions. Turning now to the financial performance from 2023, increases in record annual revenues largely tracked both the commensurate increase of annual GEOs earned as well as higher year-over-year commodity prices. On a quarterly basis, strong commodity prices resulted in the new quarterly high water market sheet in the fourth quarter of $65.2 million, which contributed to a revenue achievement of $274.3 million for the full year 2023. One of the disciplines I brought to the team is to think in per share metrics, and it is encouraging to see that from a cash flow per share growth perspective, our annual cash flows from continuing operations in 2023 compared to 2022 increased by $0.04 per share, despite being impacted by increased interest charges and higher GMA as a result of severance charges associated with the recent management changes. Without these severance charges, the increase in cash flow per share would have been $0.06. A net loss of $0.26 cent per basic common share for the 2023 year represented in marked decline versus the previous year. However, this delta largely reflects non-cash impairment charges on royalties, streams, and investments. The major contributors of this impairment were charges to the carrying value of the Renard stream and loans, air value accounting treatment of our investment in a Cisco development, and an impairment of the Trixie stream at FinTech. On the latter, please refer to the Cisco development press release put out this morning related to their impairment review at Trixie. More importantly, 2023 annual adjusted earnings of $0.54 per basic common share represented an improvement over 2022. During the fourth 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. Recalled deliveries from the associated copper stream for CSA are not set to kick in for ASISCO until June 15th of this year. Our geos earned come predominantly from Canada, and we derived over 90% of our geos from precious metals. Gold at 67%, and silver at 25%, with the remainder coming from diamonds and other metals. With the recent shutdown of Renaud, diamonds will no longer be a contributor to Cisco's geos going forward, putting the company in a position to be effectively 100% precious metals until some of the company's base metal exposure begins to expand, with the aforementioned CSA copper stream being the first such major contributor later this year. Some comments on specific mine performances before speaking about a couple of our assets in greater detail. Like a reliable workhorse, the Canadian Malartic had yet another impressive year and remains the company's most significant contributor to GEO's earned. In terms of the underground project progress at Odyssey during the period, Ignico Eagle's planned mining rate of 3,500 tons per day was reached in October, 2023. and sustained through the fourth quarter. In addition, underground development was ahead of plan in the fourth quarter. Finally, the main ramp towards East Gouldie is ahead of schedule with Agnico Eagle expecting to reach the first level of the top of the East Gouldie deposit at a depth of 750 meters this quarter. Consequently, we're excited to hear that our partner is now evaluating the potential to accelerate initial production from East Gouldie to 2026. a year earlier than previously expected. Performance from the Victoria Gold Eagle Mine in 2023 was an obvious improvement over 2022, despite a two-week wildfire evacuation during the third quarter. Victoria managed to achieve total production within its provided guidance range. With the mine becoming more predictable going forward and based on the new blind plan released earlier last year, Cisco looks forward to modest year-over-year growth as the company works towards achieving a near-term target of 200,000 gold ounces per year. The strong performance from Alartic, Eagle, and others helped offset the lower-than-budgeted SilverStream deliveries from Capstone's Mantos Blanco's operation. The milling rates continue to lag Phase I expansion design levels. Worth noting, his deliveries from the mine are in a two-month lag, meaning that ASISCO's 2023 results represent operations from the mine from November 2022 to the end of October 2023. ASISCO will continue to monitor Mentos' performance going into 2024, and for now is expecting relatively flat year-over-year performance from the asset for 2024. Capstone is pointing to a mid-2024 resolution of the plant issues following the delivery and installation of new pumping infrastructure related to fine tailings and water management, and after which it is expected that Mentos Blancos will consistently deliver nameplate phase one throughput rates of 20,000 tons per day. Newmont's Eleanor mine was impacted as operations were temporarily suspended for approximately six weeks during the third quarter due to the proximity of forest fires, which impacted the mine's 2023 production. And Asisco's annual geo-deliveries were also impacted. Newmont will be providing updated public disclosure on the asset as part of its annual outlook tomorrow morning. Rounding things out with our newest material contributor, Metals Acquisition Limited, they had a solid quarter, with gold and silver production basically flat versus the previous three-month period. In 2024, Cisco will benefit from a full year of silver deliveries from CSA under the silver stream and just over six months of deliveries under the copper stream from June 15th onward. The next major catalyst from our partner will come in the form of an updated mineral resource estimate on CSA, the first under metal acquisition corpse ownership. a very successful Australian IPO. After a very successful Australian IPO, the company's CDIs began trading yesterday on the ASX. As was highlighted last night in our MD&A, the number of currently producing assets in our portfolio has come down to 19 from the previous aforementioned 23. The most high-profile of these assets no longer contributing GEOs earned is Renard. while the three other names that have come off were significantly less material. These were Quali, Matilda, and Tintic, which collectively only contribute 415 geos. A more positive note, however, I'll draw your attention to the top half of the list, where five of our top ten contributors continue along their path of improvement in the form of ongoing expansions, mine life extensions, or throughput and production ramp-ups. By the end of 2024, we can also expect both Nandini and Tocantinsino gold projects to be added to this list. Along with ASISCO's high precious metal exposure, especially diamonds no longer serving as a major geo-contributor, our company continues to distinguish itself from peer-leading jurisdictional exposure as it relates to both production and NAV, to what ASISCO defines as Tier 1 mining jurisdictions. which include Canada, the United States and Australia. Recent global events have only served to underpin our belief that maintaining a high exposure to both tier one and very well established mining jurisdictions where mining has been a key industry or part of the overall culture is extremely important. As stated in our press release last night, after joining the team and subsequently going through a full portfolio review, In addition to factoring events that have transpired over the past years since this company last published its 2023 guidance and previous five-year outlook, the company has updated these numbers to reflect what we believe to be achievable ranges. With respect to our 2024 guidance of 82,000 to 92,000 geos, it goes without saying that there is a significant void in terms of geos that has been left by the shutdown of Renat. Production improvements and new mine startups, plus the CSA copper stream coming online for us on June 15th, are expected to partially offset this reduction. However, our cornerstone asset, Canadian malarkey, is guided to be flat and be modestly down year over year, in large part because of Agnico's decision to defer the reintroduction of pre-crushing lower-grade ore to increase mill throughput, which is now not expected to happen until 2025. In 2024, mill throughput is expected to be sourced primarily from the Barnett pit, as well as the Odyssey underground to a lesser extent, with total throughput estimated to be 52,000 tons per day in 2024 versus the nameplate capacity of 60,000 tons per day. Further to this, at Mentos Blancos, when combining our two-month stream delivery lag with recent progress timelines provided by a partner capstone, we are basically expecting flat year-over-year geo-deliveries compared to 2023, with a material positive step change expected from 2025 onwards. As noted in our press release, we are also expecting a 97% cash margin in 2024. This, I believe, is the highest amongst our peer group. And finally, it should be worth noting that due to recent and previously disclosed write-downs associated with Renard, ASISCO is not expecting to be cash taxable in Canada for 2024. Looking further out with respect to our five-year outlook, and as it relates to our growth trajectory, we believe 120,000 to 135,000 geos is a very realistic range for us over that time period. What this means is that ASISCO's peer-leading growth profile very much remains intact. However, this growth will not occur in a straight line. Notable assets that are no longer included in our five-year outlook that had previously been factored include Back Forty, San Antonio, and Pine Point. For reference, we also haven't been including either Amulsar or Horn 5 in any of our published numbers for some time. In summary, on slide 9, the company is now looking at its near-term guidance and longer-term outlook through a more conservative lens. After barely missing the low end of his guidance range for the past two years, Asysco has now set targets that the company is confident it can deliver on, helping us further reestablish credibility by meeting expectations set in order to complement our asset base, which we believe remains second to none. Underpinning this updated growth profile is a long list of near-term catalysts that we provided on slides 10 and 11. We've already touched on some of these earlier in the presentation, so I'm not going to go through this list line by line. However, there are a few names and opportunities that will benefit our shareholders that I'd like to highlight. As everyone may have seen last week, our partner South32 announced the final investment approval of the Taylor deposit at Hermosa, along with project economics as part of its final feasibility study. Based on the timeline provided, The project remains on track for first production in the first half of calendar year 2027. Congratulations to South32 for achieving these important milestones, and as a reminder, ASISCO has a 1% NSR at Taylor. Our partners at ASISCO Mining and Goldfields, together the Windfall Mining Group, are expected to achieve some important milestones themselves at Windfall over the next 10 to 12 months, not the least of which being the finalization of an impact benefit agreement with local First Nations. Moving to slide 11, I would also like to highlight that on Friday last week, our partner Solgold announced a successful completion of an updated pre-feasibility study at Cascadelle, effectively outlining a lower capex, longer life, lower risk development option. Solgold now expects to commence the technical work to further advance and de-risk Cascadelle. If you'd like to discuss further in any more detail any of the remaining items highlighted in these two pages, I encourage you to reach out to any of my colleagues here at ASISCO, and we'd be happy to assist. Finally, we'll end the formal part of the presentation on slide 12, which outlines the current state of ASISCO's balance sheet. At year end, we had total debt of just over $190 million and net debt of only $130 million. As we stated previously, the covenant performance is exceptionally strong with cash margins expected in 2024 of 97%. This is important. And sorry, as noted previously on this call and noted in the subsequent event in our MD&A, we've now also repaid an additional $30.2 million against our revolving credit facility, further strengthening our financial position. This is important as a Cisco doesn't expect to sit on its hands in 2024. And our much improved balance sheet provides the company with the financial capacity and flexibility to continue its strategic strategy of disciplined allocation in the pursuit of high quality accretive precious metals, streams and royalties that will bolster the company's current and near-term geo deliveries and cashflow that should accrue to our shareholders benefit. And if for whatever reason, And clearly that isn't the company's base case, but the company were unsuccessful in cementing new transactions in 2024. Then we'll end the year in a net cash position based on current projections, which is not the worst outcome. And with that, I'd like to thank everyone for listening today. We know it's a very, very busy day for earnings with respect to our peers and other mining companies, but we will open the lineup for questions. as well as questions posted on the webcast. And if we don't get to all the questions on the line, we will make sure to respond offline to those that we don't cover on this webcast. Thank you very much. Operator, over to you for questions.