Triple Flag Precious Metals Corp. (TFPM) Q3 2023 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Triple Flag Q3 2023 Results 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] I would now like to turn the call over to Shaun Usmar, CEO. Please go ahead.

Thank you, and good morning, everyone, and thank you for joining us to discuss Triple Flag's third quarter 2023 results. Today, I'm joined by our CFO, Sheldon Vanderkooy and our Senior Vice President of Corporate, James Dendle. Our business continues its strong performance during the third quarter with sales of 25,629 gold equivalent ounces, resulting in US$37 million of operating cash flow. Our portfolio is performing well with many assets experiencing positive catalysts during the quarter, such as the high gold grade open pit E31 and E31 north deposits at Northparkes continuing to progress down the development track and will start contributing to Triple Flag's GEOs in 2024. Exploration progressing at Cerro Lindo and resource expansion at Buritica. Additionally, our earlier stage exploration assets continue to advance, highlighted by Hope Bay, [DeLamar], Tamarack and [indiscernible]. In addition, we acquired an additional 2.65% NSR royalty on the producing Star mine in Australia for US$16.6 million, continuing our solid pace of accretive transactions following the Agbaou Royalty acquisition in Q2. Including the Maverix, which we closed earlier this year, this brings the total value of transactions closed during 2023 and to nearly US$700 million. Just after quarter end, our commitment to sustainability was showcased through our improved Sustainalytics ESG rating, which now places us third out of 117 companies in the global precious metals sector. We're proud to exemplify the value of sustainability that help shape this business, and I appreciate the work of our team to get to this point. I'll now turn it over to Sheldon to discuss our financials for Q3 2023.

Thank you, Shaun. We had a strong third quarter, realizing sales of over 25,600 gold equivalent ounces. We are comfortably on track to achieve our 2023 guidance. Our Q3 GEOs in turn resulted in strong revenues, adjusted EBITDA and operating cash flow in the quarter. We also recognized an impairment charge in the quarter due predominantly to the Renard diamond mine being placed on care and maintenance. The diamond market has weakened significantly this past year and the difficulties of the sector are well known. This is a noncash charge, and we do not have any further exposure to Renard in our statements going forward. Our operating cash flow of nearly $37 million resulted in operating cash flow per share of $0.18. And an increase compared to the same period in 2022. Year-to-date, our portfolio generated a robust $116 million of operating cash flow to be used for dividends, debt repayment, shareholder returns and external growth opportunities. Our quarterly dividend has been maintained at US$0.0525 per share or $0.21 per share on an annualized basis. I'd also like to comment on our strong balance sheet, which is increasingly important in today's high interest rate environment. We finished the quarter with $65 million in debt and just $50 million of debt net of cash. This represents just four months of cash flows at current run rates. Subsequent to quarter end, we repaid $8 million of debt, further strengthening our balance sheet. Lastly, our asset margins for the quarter remained strong at 90%. And 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. Cerro Lindo and Northparkes are our biggest contributors to the quarter representing 21% and 15% of quarterly revenues, respectively. We are strongly precious metals focused. Gold and Silver accounted for roughly 96% of our revenues amongst the highest in the sector. Our portfolio was predominantly located in mining-friendly jurisdictions. By geography, the country with a single greatest contribution is Australia. Our Australian producing assets include Northparkes, Fosterville and Beta Hunt as well a number of smaller contributors, including [indiscernible]. With our increase of the [indiscernible] royalty, I am very pleased that we have increased our exposure to a low-risk jurisdiction. I'll now turn to James, who will speak to our asset highlights.

Thanks, Sheldon. There were a number of important advances made across the portfolio during the third quarter. Northparkes has commenced mining the E31 open pits, which host higher gold grades and we expect CE31 pit ore process data this year, which will drive GEO's growth in 2024. Cominar [ph] had a strong performance during the quarter in the first half of the year with all our increasing 2023 production guidance to between 110,000 to 120,000 ounces of gold from 100,000 to 110,000 ounces previously. At DeLamar, a successful drilling program increased heap leachable ounces in the measured and indicated categories by approximately 25% and in the inferred category by 31%. Cerro Lindo had a strong quarter after renewed access to the high-grade areas that was restricted during heavy rainfall from cyclone Yako earlier this year, in addition to an ongoing exploration program. At Buritica, the operation continues to perform consistently. [indiscernible] has been able to grow the gold resource by approximately 700,000 ounces in the measured and indicated categories and approximately 570,000 ounces in the inferred category over the last 12 months after production depletions, highlighting the significant prospectivity within this district. And finally, Agnico Eagle's exploration program at Hope Bay continued during the quarter with 119,000 meters of drilling completed in the first nine months of the year. Agnico is evaluating larger production scenarios at the project, which will directly benefit our royalty. Turning to the next page. As Shaun previously mentioned, late in the quarter, we acquired an additional 2.5% NSR royalty on producing store mine operated by still Gold mines for US$16.6 million. bringing our total exposure to the mine to a 3.65% NSR royalty. Stawell is clearly an asset we know well, and we're happy to increase our exposure to this well-run operation. Stawell is a predominantly underground mine located 250 kilometers northwest of Melbourne. The mine commenced production in 1981 and has a strong track record of production and a history of reserve replacement. Our plant refurbishments completed in 2019 and ongoing exploration expenditure and results have driven a significant increase to the resource inventory, placing the mine on a solid long-term and flipping. Stawell store is expected to have at least a 10-year life of mine with forecasted annual gold production ramping up to approximately 70,000 ounces per annum in the long term from around 50,000 ounces currently. Over to you, Shaun.

James, thank you. As the snapshot demonstrates, Triple Flag is primed to build on our leading track record. And as Sheldon mentioned, I'm happy to say that we're on track to achieve our guidance range for 2023, which remains unchanged at 100,000 to 115,000 ounces. With our amplify power of roughly US$650 million in available liquidity, a broad base of 234 assets and a five-year average annual production outlook of 140,000 gold equivalent ounces, we're excited to continue growing Triple Flag into a leader in the sector with our top sustainability ratings and prudent capital allocation decisions. With the Board and management team being large shareholders ourselves, we completely aligned in ensuring the best outcomes for all stakeholders and are looking forward to what 2024 has to offer. With that, Eric, please open the floor to any questions.

[Operator Instructions] Your first question comes from the line of Lawson with BofA Securities.

Shaun, Sheldon and James. I just wanted to ask about the two write-downs and kind of kind of your thinking on potential lessons learned, both Renard and for sorry. I mean, obviously, there were very inexpensive investments relative to your overall investments. But I mean, is there something to glean from that that can be applied going forward to other assets? Or is this just the case of unfortunate market conditions and unknowable unknowns?

Listen, look, firstly, it's a good question. I think any organization with its way is trying to look at the things that are within your control that you can learn from. If I go specifically to the Renard transaction, we were discussing this just with our Board yesterday, there was a $200 million transaction done five, six years ago. Diamonds, as you know, are sort of noncore, and we tried at the time to bifurcate a gold stream, in particular from a diamond stream and it was sort of a package deal. And I suppose at the time, we rationalized it by saying -- it's a producing Canadian asset with strong support from Quebec and other institutions. I worked with the former Freni colleague of ours who had run Debswana [ph], gave us some expert input into the due diligence at the time because it is outside of our ordinary sphere. And that all went quite well. And I think as we look with hindsight, you made the point it's 234 assets. I think if you look at our overall percentage of write-downs on our net invested capital, we actually -- we will be the best in the sector amongst any of our peers. -- but that's still coal comfort. The things that with hindsight, I think, happened in that lesson, firstly is the transition from open pit to underground. Clearly, they struggled, which impacted liquidity. And primarily, it's been a story of difficult diamond conditions and inflation. And if you think back, we supported the business through a difficult period, along with other investors that made cash and it was fine prolonged optionality. But in this environment, that market has really got crushed in the last number of months, which we feel really bad for the teams that we try to support through this period. So -- as Sheldon said, there's no more investment in there. The lessons learned for us primarily is this wasn't the thing we pursued in isolation. We only...

Indicative of the struggles the junior mining sector has had on the equity front. And they run through the process. We've taken the write-down now, it's written down to zero on our books. This is behind us at this point. But -- and there's a press release that was out recently that IQ has made some motion to enforce some securities. So we just thought it was prudent to put this behind us. But I think the real story there is the junior equity markets just aren't very open and more cash flow wasn't available to them from investors.

James, anything you'd want to add?

No. I mean we acquired -- the initial interest as part of a larger portfolio acquisition and follow that on when the mine look like it was positioned to come into production. But as Sheldon said, they don't have the last set to deal with the challenges they experienced given the state of the markets.

And listen, I think I end by saying, I think it is one of the situations we're finding, which is presenting opportunity and risk, and we're focusing, I'd say, more intensely as a consequence -- it feels like the access to capital and the equity capital markets for the juniors and even intermediates is atrophy. And I think that presents a really interesting opportunities for our form of financing for ourselves and our peers. But it really means being extra vigilant in the event they run into any issues that they've got sufficient liquidity -- so that's been systematic for us all year. And we've passed up a number of interesting deals as a consequence. That's a big focus for us. Hopefully, that gives you a bit of an answer, probably more than you bargained for.

It was, but a very, very helpful perspective. I mean, I appreciate that. I think it will help anybody listening on the call, too. I also wanted to ask about Pumpkin Hollow and what you're thinking is around that asset. I mean, I think if I look over the portfolio, I mean, it's probably the one other assets that would give me any sort of level of concern. The others seem to be doing very well or relatively well. Are you expecting production from that at all next year? And then, I mean, I think the plan is more for sort of 2025. And then what are your thoughts on potentially deploy more capital in what could be a potentially high-return asset in the long term?

Yes. So I mean, that story as you've traveled the journey with us. We had -- as we tend to have lease funded development stage assets with meaningful checks into production. That was one that even with a conservative set of adjustments has really struggled. And I think importantly, our form of financing has been very supportive and defensive. We supported that team through this. They've hit an important milestone now with getting the mill back on they've got some work to do still, obviously, to ramp up ultimately to nameplates, which will take time. And I think you remember at the start of the year, I think we were quite clear that assets like that, in general, we handicap our numbers for all sorts of good reasons. We have assumed no ounces for this year. And we haven't put out public guidance yet on the year ahead. I think we're going to continue to maintain a further conservative posture. But I think the one thing that is sort of important to us, particularly in this environment where you've seen what's been happening in Central America and elsewhere recently, copper is a commodity which remains sort after. We're putting aside the ebbs and flows of shorter term supply demand. It is an essential commodity for the energy transition, and U.S. based copper is just and intrinsically useful and valuable assets. So we remain very supportive of that. We'll continue to remain as sort of defensive posture of that investment, but I think we're also very well positioned in terms of where we rank and how we think about that. And we've got a lot of optionality as you know. It's not just the underground. We also have exposure to the open pit. But, Chilton, James, anything you'd wish to add?

I think that covered it very well.

Lawson, do you want to ask us about our really good assets? Or, anyway, any other questions you wish to cover?

No. That covers it all. And I would just say, I agree. I think you covered both questions extremely well. Thank you for that. I appreciate your thoughts.

No, no, no worries. Thanks so much.

[Operator Instructions] Your next question comes from the line of Carrie Maguary with Canaccord Genuity.

So maybe just to follow-up on Renard, to keep with the not great performing assets going. But just wondering if you can summarize your ownership position in [Stornoway] -- and is there any potential for any future liabilities to flow through to triple play?

Carey, it's Sheldon. I'll answer this one. We hold a stream on Stornaway, and we also hold a debt interest and we also hold a minority shareholding interest there of 13% we've written everything down to zero, so we don't see any further exposure there, and we don't see any further exposure coming up from the Stornoway level up to the triple play.

So no potential exposure to closure costs or anything like that?

No, I don't think reliable for any closure costs there. I know they have arrangements. They have bonding facilities and some cash reserves available at the Stonraway level, but that is actually -- we're a minority shareholder there. And and a stream holder and a debt holder, where we don't see any exposure.

Your next question comes from the line of Tanya Jakusconek with Scotiabank.

I won't ask about diamonds even though I could talk about diamonds all day. I'll move on and just talk about just the M&A environment. I'm just interested in the comment you made, John, about just the challenges of the equity markets for the juniors. Should I read into this that you are looking at future deals, having more involvement on the equity side and the debt side financing these junior companies on top of the stream? Or should I think of it in a different way?

Yes, Tanya, firstly, it's good to hear from me. I think you've been consistent over nearly eight years now where when we were -- we started, we were told to compete. We had to actually write big equity checks and do a host of other things. And I think with the business we have today, we've really not done that. You heard on Renard, we've got a small position, we helped them during a period of distress. But those have always been small checks in the context of our primary business. And you can see that in our NAV. I mean, we're within spitting distance of 100% of just streams and royalties. And so we've achieved what we've achieved, and I don't see a reason notwithstanding that we've seen some of our larger peers engaged in doing that. I think it violates the model. And I also think that there are complementary and very capable pools of capital that we've shown in the past, we've been able to work with quite successfully to drive it sort of full funding solutions. So just this last week, I won't disclose the party, but we are receiving inbounds from groups that are interested. They see perhaps a generational opportunity on the resources space, and they're looking for knowledgeable financing partners to work with. And we've been able to, I think, successfully compete in that way in the past. I think the largest equity checks we've ever written. But in the context of much, much larger overall checks for a transaction where perhaps -- our money is contingent on going in on a full funding solution, and we act maybe as a cornerstone, it's something like $10 million on a, say, $100 million check or thereabouts. And so I suppose what I'm saying is, notwithstanding those difficulties. I think what it means is we are -- we spend probably more time looking at downside pricing scenarios and liquidity scenarios when we stress test our models, it's not just blind IRR lens that we're applying. We never have. but it's less -- it's more about that and risk to the portfolio, unless we find religion and we really see a much larger opportunity perhaps to partly an equity check for a much larger financing. So hopefully, that answers your question.

So I read from this that your -- most of the transactions you're looking at would have a minimal component of equity within your overall size of your transaction.

I'd say at the moment. Yes, I said that it's been a really interesting year and we've touched on it previously, where we've seen a return of cash-generating streams coming on to our deal pipeline for the first time in a while. And we've been very active on those, a number of site visits and the like. And we've chosen, as you've seen with some of these, these have been smaller transactions, high return relative to what we're seeing in the market, decent jurisdictions, but those have not been combined with equity checks. Those are being provided by other people. We've seen some very large ones where the reason, in some cases, we walked away, and we've chosen not even on exclusive transactions is because of overall leverage and too much risk to the capital spend. So I think the ebbs and flows of the deal pipeline continue the way they always have, and we're seeing it -- we still see a very active pipeline. I think at the moment, we're seeing things that are high quality, don't involve an equity check still in the sort of low hundreds of millions of dollars. There are sort of more difficult things that are larger, which may or may not come to book either for ourselves or for the sector, perhaps a little bit later on. But yes, I don't know. I'm not feeling like I'm under pressure for us to start building like a Triple Flag equity portfolio.

Okay. So a couple of hundred million dollars stores build a range for the deals and mainly streams and/or royalties without an equity component.

And the usual sort of the [trites] of noncore stuff that's not producing, that's really -- we're only entertained by exception. It's not it's got to be really interesting when you've got like 200 assets in that category already as a portfolio. Our focus is more on as I think it's always been, particularly right now, it's more on things that are generating cash or where there's a very clear line of sight to that. So it served us well, and we'll continue to focus on that.

Any opportunity to -- as you did this recent transaction and increasing your exposure to other projects that you already have exposure to like additional royalties. Do you see any of that within the portfolio?

James, do you want to comment?

Yes. I think there's a number of opportunities, I think, where there's capacity to further increase our streams and royalties to provide additional capital for expansions and things like that. I won't go into specifics, but we're very keen to basically invest more in our portfolio assets, in particular, some of the producing assets right now. I think the question really is how our former funding stacks up with the alternatives companies have at their disposal. So we think we're well positioned in that regard, particularly given the rate environment.

Okay. So there are opportunities there, James?

Yes, sure. We've just done one tool as you which provides -- it's a small deal, as you know. -- but it provides capital for an expansion of a new mining area that actually benefits our initial royalty while increasing our exposure to that asset. So we could -- it's a great example of a deal that we'd like to do, particularly on producing assets in good jurisdictions like store.

Thank you. Ladies and gentlemen, there are no further questions at this time. I'll now turn the call back over to Shaun Usmar for closing remarks. Please go ahead.

Yes. Look, thank you all for the time. We try to keep this very focused. It's good to see half an hour. We've done that and covered off, I think, some very relevant questions for our business. This quarter has been, I think, another demonstration of quite steady performance, not just on the ounce portfolio -- line sensible accretive additions on the deal-making front, a robust balance sheet. And as we look back now, we're going to celebrate eight years next year I think when you look at the sustained growth that this business has in a very diversified portfolio, high margin, I feel very fortunate that we're in this situation with the opportunity set that we see ahead. So with that, just thank you all. We look forward to ending the year well and coming out with our guidance for '24 and beyond. I think the business is in great shape. So thanks so much, everyone.

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