OR Royalties Inc.

Good morning, ladies and gentlemen, and welcome to the ASCISCO Gold Royalties Q2 2024 Results Conference Call. After the presentation, we will conduct a question and answer session. If you would like to ask a question during this time, please press star 1 on your telephone keypad. Please note that this call is being recorded today, August 7, 2024, at 10 a.m. Eastern Time. Today on the call, we have Mr. Jason Etupoza and Chief Executive Officer. and Mr. Frédéric Ruel, Chief Financial Officer and Vice President of Finance. I would now like to turn the meeting over to our host for today's call, Mr. Jason O'Toole. Bonjour, Mesdames et Messieurs, et bienvenue à l'appel conférence des résultats du deuxième trimestre de l'année 2024 de Redevance Horifère à Susco Limité. Après la présentation, nous procéderons à une séance de questions et réponses. Si vous désirez poser une question, veuillez appuyer sur la touche étoile suivie du numéro 1. Veuillez prendre note que cet appel est enregistré aujourd'hui le 7 août, 24 h à 10 h, l'heure de l'Est. Nous avons sur l'appel d'aujourd'hui M. Jason Attu, président et chef de la direction, et M. Frédéric Ruel, chef de la direction financière et vice-président finance. J'aimerais maintenant céder la parole à votre hôte, M. Jason Attu.

Thank you, Joelle. Good morning, everybody, and thanks for being on today's call on this beautiful summer's day. I'm Jason Attu, President and CEO of the Cisco Gold Royalty. Procedurally, I'll run through the presentation, and then we'll subsequently open up the line for questions. For those participating online via the webcast, you can submit your questions in advance through the webcast platform. Today's presentation will also be available and downloadable online through our corporate website. Please note that there are forward-looking statements in this presentation for which actual results may differ. Also, please note the basis of presentation will be in Canadian dollars unless otherwise noted. I'm joined on the call this morning by Fred Ruel, the company's VP Finance and Chief Financial Officer, amongst the others as indicated on slide three. When looking at ASISCO's second quarter and first six months of 2024, we've had a solid first half as it relates to gold equivalent ounces earned, cash margin, cash flows, as well as overall debt reduction. Cisco earned 20,068 gold equivalent ounces in the second quarter of 2024, which had put us in a good position on June 30th to achieve our previously published full-year guidance of 82,000 to 92,000 geos. Revenues for the period were strong in Q2 at $64.8 million, buttressed mainly by improving precious metal prices throughout the period. In addition, Cisco's cash margins remained high at 97% during the quarter. Cisco ended the first quarter with $65.7 million in cash, and net debt has now been reduced to just over $40 million after the company continued to pay down its revolving credit facility during the period. So far in Q3, the company has repaid an additional $13.8 million on the facility, further increasing their financial flexibility in order to be able to transact new accretive opportunities as they present themselves. With respect to our ongoing commitment to return capital to shareholders, the company declared and paid its quarterly dividend of $0.065 per share in Q2, marking its 39th consecutive dividend with over $290 million returned to shareholders to date from these distributions. Subsequent to the quarter, Cisco's Board of Directors approved a Q3 dividend of $6.5 per common share, payable on October 15, 2024, to shareholders of record as of the close of business on September 20. With respect to our opportunity set, the company's pipeline continues to remain robust. with our corporate development team busier than they have ever been, we remain optimistic that we'll get at least one meaningful deal across the line this year, over and above our recently announced Cascavel Gold Stream. Moving on to the company's financial performance for Q2, quarterly revenues effectively track higher year over year due to strong commodity prices when comparing to Q2 of 2023. which is also partially offset by fewer GEOs versus the same period last year. The net loss of $0.11 per basic common share for the period was due entirely to our decision to take a full non-cash impairment charge of $67.8 million, or $49.9 million net of income taxes, on the Eagle NSR Royalty, based on our own internal assessment of the current facts and circumstances. And of course, as more information continues to surface, especially as it relates to timelines associated with a potential restart of the operation and resumption of precious metal deliveries to a Cisco under its royalty agreement, a reassessment of the recoverable amount of the ego royalty will be performed at that time, which may lead to a reversal of part or all of the impairment loss that has been recognized. Most importantly, Q2 2024 saw a year-over-year improvement in both cash flow per share at $0.28 versus $0.26 last year, as well as quarterly adjusted earnings of $0.18 per basic common share versus $0.15 in the comparative quarter of 2023. During the second quarter of 2024, the company had 20 producing assets, including the Eagle Mine. which was producing up until the suspension of operations on June 24, 2024. Our geos earned come predominantly from Canada, and we derived over 98% of our geos from precious metals, gold at just under 71%, and silver at 28%, with the remainder coming from other metals. Some comments on some specific mine performances during the quarter before speaking about a couple of our more material assets in greater detail. Canadian Malartic had yet another extremely impressive first half of 2024, with Ignico booking strong quarterly production from the mine in the second quarter. The asset remains ASISCO's most significant contributor to GEOs earned by a solid margin. Performance for Victoria Gold's Eagle line during the second quarter of 2024 fell significantly short of our budgeted expectations, to the tune of about 33%. In other words, even prior to the heat leach facility failure on June 24th, Eagle was already underperforming through the first half of the year. It is our understanding that Victoria Gold will be reporting its Q2 2024 on August 8th, So in the absence of additional information, it is our assumption that the mine will not provide us any geo-deliveries in 2024. At Capstone's Mantos Blancos operation, Q2 production was lower year over year due to lower grades and recoveries. Plant upgrades to reach 20,000 ton per day on a sustainable basis are progressing, despite an approximate two-month delay relative to Capstone's prior plan, due to longer equipment lead times. Cisco expects to see the benefit of the increased throughput in its silver deliveries starting in the beginning of 2025. As I mentioned earlier, the number of currently producing assets in our portfolio stands at 20. Changes to the list include the removal of Eagle, partially offset by the addition of G-Mining Ventures' Tocantinsino mine in Brazil, which announced its first gold pour in early July, as well as Agnico Eagle's Acasaba West satellite operation at its Goldex mine. On the latter, Cisco received its first payment from Agnico in July, whereas on Tocantinsino, first payment from G-Mining is expected in November, based on a two-month lag associated with the royalty payments as structured in the contract. This current list of 20 assets also counts CSA as only one single operating asset. However, as you all know, we have two instruments associated with the mine, 100% silver stream, in addition to our now economically effective copper stream, with the copper stream having provided its first deliveries to Cisco in early July of this year. Moving on to slide eight. Our company continues to distinguish itself from the rest of its relevant peers as it relates to jurisdictional exposure. Cisco is the leader when it comes to both NAV and GEOs earned from what Cisco defines as Tier 1 mining jurisdictions, which include Canada, the United States, and Australia. Of note is that if we were to add Chile to that list of countries, we'd be at over 95%. This brings me to slide 9, which provides highlights on the recently announced Cascabel Gold Stream transaction with SoGold in partnership with Franklin, Nevada. As noted in her July 15th press release, Cisco believes that Cascabel is a world-class copper-gold project that has the potential to become a multi-generational mine. This new stream investment, which complements Cisco's existing royalty on Cascabel, further enhances Cisco's peer-leading growth profile. at a very attractive rate of return. In terms of when we expect to receive GEOs from this investment, SolGold has guided to production in the 2030s, which falls outside our five-year outlook. However, once in production, the Castable Stream is expected to contribute approximately 23,000 gold equivalent ounces per year for the first 10 years of the initial 28-year life of mine. It should be additionally pointed out that this mine life is based on only 18% of the measured and indicated mineral resource of the Alpala deposit. We are very encouraged to see that Sogold recently signed an exploitation contract with the government of Ecuador. This served as another indicator that the current administration is pro-mining and Cascavel remains a top priority project within the country. As noted previously, on a GEOS earned basis, it was yet another stellar first half of the year for our most important asset, as impressive progress continues to be made on the Odyssey Underground project. While I won't spend too much time on the following two slides, I wanted to flag some language on slide 11. As evidenced by a second quarter report and subsequent conference call, Agnico Eagle continues to talk more and more comfortably but the potential for a future shaft number two for the Odyssey underground mine. Factoring in some basic assumptions and based on publicly released information from IGNICO, ASISCO estimates that a potential second shaft could add approximately 15,000 gold equivalent ounces to ASISCO gold royalties annually, over and above what is expected from the most recently published mine plan. all from the early 2030s onwards, and at no additional cost to ASISCO or shareholders. With 40,000 tons of Latin mill capacity still expected in the Canadian Malartic Complex from 2028 onwards, IGNICO has now officially made reference to a fill-the-mill strategy, with additional information on this likely to follow in the coming years. Next slide, please, slide 12. And as if the malarctic story for Cisco wasn't exciting enough, just last week, Agnico Eagle provided a comprehensive update on its Upper Beaver project in Ontario. Our operating partner announced a positive internal valuation for a stand-alone mine and mill scenario at the project. Agnico Eagle believes that Upper Beaver has the potential to produce an annual average of approximately 210,000 gold ounces and 36,000 3,600 tons of copper, with initial production possible as early as 2030. What does this mean for Cisco? Again, based on the information provided, we estimate that Upper Beaver could result in an average of approximately 4,500 gold equivalent ounces earned based on our 2% NSR royalty on the project. We were also delighted to hear that IGNICO has now committed US$200 million over the next three years to further de-risk the project and collect the necessary bulk samples prior to final project approval. Now on slide 13, and touching briefly on CSA, first delivery under the CSA copper stream to Cisco was made in the first week of July for a total of 74 tons of copper or approximately 300 geos. Further to this, just last week, Metals Acquisition Limited announced some very impressive drill results, which served to underpin the Cisco's original thesis that significant exploration potential exists across their land package. Moving on to slide 14. As you all know, and as I stated earlier, On June 24th, Victoria Gold announced that the Heat Leach facility and its Eagle Gold mine in the Yukon Territory had experienced a failure. Production remained suspended and as stated previously, absent new information, Cisco's assumption is the mine will not resume production in 2024. Cisco has now taken the appropriately conservative step to recognize a full non-cash impairment loss of $67.8 million $49.9 million net of income taxes, based on our management team's assessment of the current facts and circumstances. If there is any key takeaway from this slide, it's that ASISCO has various protections with respect to its royalty, including security over the property, registered interest and land reported within the Yukon Territory, and an inter-creditor agreement with the Senior Lending Syndicate. At this time, these various layers of protection provide a Cisco with confidence that our rights will continue upon a restart of the Eagle Mine. As a secured creditor, we will continue to monitor the situation closely and provide further updates to the market as warranted. Prior to the heat bleach facility failure at Victoria Gold's Eagle Mine, Cisco was tracking well with regard to its previously published 2024 geo delivery guidance range of 82,000 to 92,000 gold equivalent ounces. However, under our assumption that production at Eagle will remain suspended through to the end of 2024, the company has decided to adjust its 2024 geo delivery guidance 77,000 to 83,000 gold equivalent ounces. I have already provided additional context on this call as it relates to Eagle's underperformance. versus our budget expectations for the first half of the year, and this should also help further explain why we made this adjustment. Additionally, with surge capacity equipment at Capstone's Mentos Blancos having been installed two months later than originally scheduled, we took a further step in making some cautionary adjustments to our budget as it relates to the second half deliveries we are expecting from Capstone Copper. Our investee companies continue to make great strides in de-risking their assets that will accrue to our shareholders. Highlights of some of these efforts are provided on slides 16 and 17. We've already discussed many of these already on previous slides of this presentation, so no need for me to add anything here today. That said, I would still suggest you take the time to go through the impressive list yourself. And if you have any questions or would like to further discuss any of the remaining line items highlighted on these two pages, I encourage you to reach out to my colleagues here at ASISCO for more information. Moving to slide 18, which outlines the current state of ASISCO's balance sheet. At quarter end, we had a total debt of just under $110 million, net debt of only $43 million. which compares the net debt of just under $250 million in the comparative quarter of 2023. Our focus on being responsible capital allocators is using our cash flow from operating activities and redeploying it in the form of paying down our revolving debt facility, which year-to-date is over $101 million, $87.8 million in Q1 and Q2, and $13.8 million subsequent to quarter ends. Also subsequent to quarter ends, we made a U.S. $10 million payment to Soho as a first installment under the Gold Stream Agreement to further advance the Cascavel project in Ecuador. In addition, as mentioned in last quarter's conference call, the commodity prices, specifically gold and silver, remain above the U.S. $2,400 and U.S. $27 respectively. we forecast to end up in a net cash position by the end of the year. That, of course, is absent of any material acquisitions of royalties or streams we make during that period. This is important as, even though we've already made an announcement on a key transaction regarding Cascabel, Cisco's corporate development team remains busier than ever. With the hope of getting more deals across the line before year-end, and our much-improved balance sheet provides a company with the financial capacity and flexibility to continue its strategy of disciplined allocation in the pursuit of high-quality, free of precious metals, streams, and royalties that will bolster the company's current and near-term gold-equivalent ounce deliveries and cash flows that should accrue to our shareholders' benefit. Finally, I would like to take the opportunity to welcome our newest board member, Ms. Wendy Louie. who we believe will be a tremendous contributor to our company go forward. Wendy brings a wealth of experience in resources and commercial and accounting matters from her impressive career credentials from Duke Energy, Ernst & Young, Hecla, Goldcorp, and most recently, Sabina. And with that, I'd like to thank everyone for listening today. We will now open up the line for questions, as well as questions posted on the webcast. We don't get to all the questions on the line. We'll make sure to respond offline to those we don't get to cover on this webcast. Thank you for your time. Operator?

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Ralph with a capital. Your line is now open.