Triple Flag Precious Metals Corp. (TFPM) Q2 2023 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. My name is Sharer, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Triple Flag Q2 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Chief Executive Officer, Shaun Usmar, your line is now open.

Thank you, Sharer. Good morning, everyone, and thank you for joining us to discuss Triple Flag's second quarter 2023 results. Today, I'm joined by our CFO, Sheldon Vanderkooy our SVP of Corporate Development, James Dendle and our VP Finance, Eban Bari. Into the next slide, our business continues its strong performance during the second quarter with sales of 26,616 gold equivalent ounces, resulting in $41 million of operating cash flow, which are new quarterly records. Our portfolio is performing well with many assets experiencing positive catalysts during the quarter, such as Steppe Gold's Phase II funding for ATO, Fosterville's prohibition notice which restricted underground activities having been lifted and Northparkes mobilization of surface mining equipment for the high gold grade E31 open pit to name but a few. In addition, we acquired a 2.5% NSR royalty on the producing Agbaou mine operated by Allied Gold for $15.5 million, which brings immediate GEOs to our top line. During July, we released our 2022 Sustainability Report entitled Progress and Motion, showcasing our contributions and commitment to helping evolve market-leading sustainability performance. I'd encourage you to view these documents, which can be found on our website. Also subsequent to the quarter end, Triple Flag received a rating of AA in the MSCI ESG rating assessment, placing us amongst the leaders in the gold sector. Finally, we're pleased to announce that our Board of Directors approved a dividend increase to €0.21 per share on an annualized basis, which is a 5% increase and is our second consecutive annual increase of the dividend since our May 2021 initial public offering. I'll now turn it over to Sheldon to discuss our financials for Q2 2023.

Thank you, Shaun. We had a record second quarter, realizing over 26,600 gold equivalent ounces. This resulted in record revenues, adjusted EBITDA and operating cash flow in the quarter. Net earnings of over $16 million resulted in an increase to our earnings per share compared to the second quarter of 2022. Our operating cash flow of nearly $41 million resulted in operating cash flow per share of $0.20 an increase compared to the same period in 2022. The portfolio is performing well, and we are on track with our guidance. I am particularly pleased that we increased our dividend by 5% to $0.21 on an annualized basis. We have robust cash flow, and the portfolio has embedded future growth that does not require further capital investment. I expect this will allow us to extend our track record of increases in future years. In the quarter, we paid out over $10 million of dividends to our shareholders. We also returned capital to shareholders through the NCIB in the quarter. We believe that our shares represent significant value, and we will be opportunistic in buying back our shares as opportunities present themselves. We repaid $15 million of debt in the quarter with a balance of $65 million at quarter end. This represents less than two quarters of cash flow. Lastly, our asset margins for the quarter remained strong at 91%. High asset margins are a key feature of the streaming and royalty model and help ensure robust cash flow generation. I'll now turn to Slide 6. Slide 6 highlights three very important aspects of our portfolio namely, asset diversification, precious metals focus and a portfolio which is predominantly centered in the Americas and Australia. Our revenue is well diversified across our portfolio. Northparkes and Cerro Lindo are the biggest contributors in the quarter, representing 17% and 15% of quarterly revenues, respectively. We are strongly precious metals focused. Gold and silver accounted for 95% of our revenues among the highest in the sector. Our portfolio is predominantly located in mining-friendly jurisdictions. By geography, the country with the single greatest contribution is Australia. Our Australian producing assets include Northparkes, Fosterville and Beta Hunt as well as a number of smaller contributors. Outside of Australia, we are largely focused in Latin America and North America. I'll now turn to James, who will speak to our asset highlights.

Thanks Sheldon. On Page 7. There are a number of important advances made across the portfolio during the second quarter. ATO secured funding package to develop Phase II expansion. As a reminder, Triple Flag participated in the acquisition and financing of the heap leach oxide project but our stream area entitles us to production in the Phase II expansion without the need for further investment, representing tangible upside from the original investment case. As Agnico Eagle has announced, first we'll to normal operations in June with a noise prohibition lifted. Northparkes has commenced mining the E31 open pits, which has higher gold grades and we expect to see E31 open pit ore process later this year and into 2024. Cerro Lindo has renewed access to the high-grade area of the mine that was restricted up to heavy rainfall earlier this year. The rainfall event was highly unusual. Cerro Lindo is located in a very arid part of Peru. Excelsior announced the JV agreement with Rio Tinto's, Nuton Venture to evaluate sulfide heap leaching and Johnson Camp. Johnson Camp is within the Stream area and represents additional upside to our underwritten investment case. Excelsior remains committed to the in-situ leaching project at Gunnison and is pursuing Johnson Camp with Nuton technologies in parallel. And after a prolonged competitive process, Implats has successfully acquired RBPlat. Implats is one of the world's largest integrated PGM producers and brings a strong balance sheet towards a track record of excellent operational performance and productivity at neighboring mines. RBPlats assets are contiguous and complementary to Implats operations, securing a significant Western Limb production base. Turning to Slide 8. As Shaun previously mentioned, in mid-June, we acquired a 2.5% net smelter return royalty on the producing Agbaou mine, operated by Allied Gold, for a total consideration of $15.5 million comprised of $13.5 million in cash plus a non-royalty asset that was acquired as part of the Maverix's transaction. Agbaou open pit mine and NSR processing facility with an attractive land package and exploration upside run by a capable team of examine executives and represents important assets and Allied Gold's Cote d'Ivoire operating hub as usual.

On Slide 9, as the snapshot demonstrates, Triple Flag is primed to build on our leading growth track record with amplify power of over $650 million in available liquidity, a broad base of 229 assets and a five-year production outlook of over 140,000 gold equivalent ounces. We're excited to continue going Triple Flag into a leader in the sector with our top sustainability ratings and prudent capital allocation decisions. With the management team being large shareholders ourselves, we are completely aligned in ensuring the best outcomes for our stakeholders. With more than 53,000 GEOs sold in the first half of this year, we are on track to achieve near the midpoint of our guidance range for 2023, which remains unchanged at 100,000 to 115,000 ounces. On the final slide, to conclude, our business model will continue to prove itself and providing investors with competitive risk-adjusted returns and exposure to precious metals through free cash flow generation, diversification embedded optionality, consistently high margins and a low scalable G&A base. As major shareholders ourselves, our focus remains on disciplined deal execution and value creation, pursuing sensible and accretive deals in a pitcher manner rather than pursuing growth at any cost. I'd like to end by thanking our mining partners, our team and the Board for another solid quarter. I'd also like to welcome David Lee to our team. He joined us from Barrick in the role of VP, IR. David is a great addition to Triple Flag who has considerable capacity to our team as we continue to develop our public market presence. Thank you for your time. And operator, please open the line up for questions.

[Operator Instructions] Your first question comes from the line of Cosmos Chiu with CIBC. Your line is now open.

Great. Thank you, Shaun, Sheldon, and James and welcome, David. First off, you'll be happy that I will not be asking any complex accounting questions on this call. I'm actually quite happy about that as well. So with that, maybe my first question is on Northparkes. James, as you mentioned, and Shaun, you mentioned this as well, they've mobilized mining equipment for the E31 higher-grade deposits. I know you said that mining should start sometime later on in 2023. But I just want to make sure, would that contribute to your accounts? Would that come to -- would there be any contributions to Triple Flag later on in 2023? And has that been factored into guidance?

I can take this. Northparkes has started mining E31. There's a pre-strip element. And then there's an oxide element. The oxide will be stockpiled processing in the future date. The sulfide ore is really what drives production. From what we've seen so far, it looks like sulfide ore will be treated later on this year. There are -- there are scenarios where that happens a bit sooner because the sulfide is being encountered further up in the profile than expected, which is good. If it is treated this year and it's in Canada earlier, of course, we'll have to see whether it works its way through the concentrator all the way through the sales pipeline to impact positively our Q3 results, which is incorporated in part of the range that we've put out with our guidance. If it doesn't come into Q4 in 2023, of course, we'll see it on 2024. But the mine is making good progress on exposing that sulfide -- the sulfide as well, as we've mentioned, will be treated contemporaneously with the underground ore sources at the mine is mining at present.

Of course. That's great. And then maybe switching gears. Cerro Lindo, as you mentioned, usually not a lot of rain, but quite a bit of rainfall in Q2 that indeed getting into some of those higher grades. But as you said, sometime in Q3, there will be renewed access to those higher grades. Are we there yet? I'm just trying to get a handle on again an update in terms of the renewed access.

Yes, the access looks to be pretty much there. I think it's worth keeping in mind, of course, that there's a couple of dynamics. One, as you know, this is a zinc copper mine. The highest silver grades tend to be with the copper and the lead. So, you would get variability depending on the mine's focus between zinc and copper rich areas. And the other element, of course, is that there is a time delay between production at the mine and the production of concentrates and sales to distribute under the stream, so whilst they look to be back in the areas they want to be in, there will be a delay in terms of those ounces flowing through to the stream.

Great and...

Around four months. And that's typically three, four months, if you recall that delay.

And then maybe one last question on Nevada Copper. Pumpkin Hollow sounds very good that development mining sounds to be ahead of schedule. There is a good number of stockpiles as well. Again, could you remind us when that might start contributing?

Yes, because look, we're cautiously encouraged with the progress that they're making. They are still guiding to, I think, at the end of Q3 to start the mill and hit that 3,000 tonne a day and then ramp up towards 5,000 by the end of the year. That's really what they're working towards. And as you recall, we're taking a sort of cautious tonnes until they're up a production capacity on that. So that's the stance we've adopted, but we're very encouraged with the progress they're making.

Thanks, Shaun. As promised, no accounting question. Sorry, Shaun, but thanks again.

Your next question comes from the line of Greg Barnes with TD Securities. Your line is now open.

James. Just on ATO with the Phase II expansion, when do you expect that to start to deliver GEOs to you? And what does the GEO profile look like? I know there are caps at some point that kick in.

Yes, Greg, good question. Look, I mean, the Company is -- and I've referred a Steppe Gold is guiding to the sort of high 20-ish on gold production over the next couple of years as they transition towards building the Phase II and ramping that up, fairly shortly after they ramp that up, we'll be into the cap based on their production expectations. There will be a period where the oxide is coming down in terms of its production rate in the absence of further discovery whilst the Phase II element is ramping up. Now that could mean that we're getting more ounces than we do currently or it can mean we're getting less depending on that schedule. Right now, we're not at the stage where we have clarity around the front-end engineering design and the exact scheduling of that ramp-up profile. So it's somewhat challenging to say exactly what that crossover will look like because as you can appreciate, if you've got a three- or six-month gap, it can resolve in quite significant variance depending on the profile of one of the oxide and the proof the sulfide. So, we're not in a position to provide a sort of a fair view on that. But we ensure that, that view is reflected in our guidance going forward and of course, at year end.

And Greg, we had a couple of our team members in Mongolia just a few weeks ago, first time since COVID, to look at the progress on site. They've taken a few selfies with lots of cyanide stockpiles. So, we're very happy to see that. And as you know, I'm pretty encouraged with the transition to Phase II and the funding of that announcement.

For Phase II expansion, when is construction expected to be complete and will actually be into the Phase II mining?

Yes. Look, I think we're really looking at 2025 before that gets going. But I think it's important to keep in mind that a lot of this infrastructure in relation to plant is in stores, but acute first phase. And also the bulk of the primary crushing infrastructure installations Dendle talked too. So, they're sort of doing it progressively in some senses, because we don't ramp up until we get through the need to mine to the oxide before they can access sulfide in any case. And just -- I should just mention that Steppe is actively exploring for extent into the oxides. One of the things we noticed when we first looked at ATO. There is a lot of gold mineralization in the area. So, there is some opportunity to extend the life of the oxide through incremental additions and discovery, proximal to the existing operations.

And would any of those satellite deposits impact the GEO caps that you have or a gold and silver caps that you have?

Would be a nice problem to have. So we'll see. I think they could do. But again, I think we'll have to wait to see what those all sources look like before we can make a determination on whether it is capital.

Your final question comes from the line of Lawson Winder of Bank of America. Your line is now open.

Thank you, operator, and hello, gentlemen, thank you for the update today. I wanted to ask, first of all, on the Agbaou acquisition, congratulations on closing that. When that asset was sold by Endeavour, I mean, there weren't many years of remaining production expected. So, I assume Triple Flag must see some upside on that mine site. What are you looking for in terms of mine life and annual production?

I think, Lawson, I like gold has done a wonderful job with the assets they've acquired, including Bonikro study of both exploring, developing, cutting costs and optimizing the production profiles. And I think it's probably quite one then that was they done at [indiscernible] [Sadiola]. And we see the same with Agbaou, the Company is actually undertaking the largest exploration program in the history of that operation at present. So, they've meaningfully extended the life of mine from when Endeavour sold it, and we see quite a promising future in that asset. And I think it's actually helpful that Agbaou and Bonikro form quite a neat operating unit in Cotoire whereas previously, there are two separate assets despite that proximity. So, we see quite a few years of life on that asset. I expect to see some public disclosures from Allied Gold, the expected to go public later this month. So there'll be top reports there on the comp.

Okay. That's helpful context. And then thinking about the deal pipeline is Agbaou and that sort of size of transaction, the type of thing that you're seeing? What is sort of the range of transaction size you're seeing in the pipeline?

Yes. Listen, good to chat to you. So, we're obviously -- I mean, Agbaou demonstration, we are seeing stuff in that size or snack bracket. But we're also continuing to see things in the sort of hundreds of millions of dollars as we've seen throughout this year, which is sort of quite encouraging. So, the pipeline continues to sort of remain active in that size range that we've seen through this year and not just on the kind of late development stage stuff that you always see, I think we're continuing to see actionable sort of tens of millions to hundreds of millions of dollars on sort of late-stage development and some producing stuff as well.

Great. And maybe if I could also ask one more question just on Prieska. I think we've discussed it before on these calls. But now that it's closed. Congratulations on that. Any updated thoughts on your thinking on what you see in the feasibility in order to proceed with that $80 million investment? And are you seeing any early indications as to how you might proceed with that?

Yes. So I mean, yes, just as a reminder, it was a while ago, we announced it. Seeing that close with that gross revenue royalty is important. Seeing the IDC come in as part of that was, I think, a strong vote of confidence in both that opportunity and the team. It didn't get a lot of attention up here, but certainly in Australia, there were some articles as well on the equity investments that they've had with groups that have got a good track record of sort of modular mine developments with a view to sort of more rapid ore body access. So, they're coming to that story, which we're quite happy to see both for the additional liquidity and also the know-how and capability that they bring. So from our point of view, you'll recall, we structured this, on the one hand, with gross revenue royalty, modest check, 10 million. But the next phase is sort of an option in our favor for $80 million. I think the thing in particular that I'm encouraged by, as I look at that is, I've yet to see how just humanity is going to solve this apparent gap between apparent demand for copper supply and the available sources out there. Brownfield situation with sunk capital and know-how with clearly significant mineralization I think is an underappreciated opportunity and this is like squarely in that category. So, we're looking to the back half of this year or next to sort of see where they get to on that study as well as the funding and to make sure, obviously, it meets our requirements before we make commitment. I'm very pleased with how it's playing out so far.

At this time, there are no more questions. I'm going to turn the call back over to our CEO, Shaun Usmar.

Sure. Thank you, and thanks for the questions. Thank you for the time. I'm just going to end by, no, reminder me -- sorry, operator, there is a bit of noise in the background. Yes, just drawing to your attention, we've hopefully starting to demonstrate to the investment audience and beyond this team's ability to just sensibly execute, deliver actual ounces sector-leading growth in a very sustainable way. And I think this quarter is just yet another demonstration of that, high margins, strong cash flow, a robust balance sheet, a progressive dividend that we just increased as well. And a team that I think is well poised to continue on the journey that we've demonstrated for the last 7.5 years. So with that, thank you for your time. Enjoy the rest of the summer. And well, I'll leave it there. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.