2023-11-09 10:56:10 ET
Altius Minerals Corporation (ATUSF)
Q3 2023 Earnings Conference Call
November 9, 2023, 09:00 AM ET
Company Participants
Flora Wood - VP, IR & Sustainability
Ben Lewis - CFO
Brian Dalton - Co-Founder, President and CEO
Conference Call Participants
Adam Schwartz - Black Bear Value Partners, LP
Craig Hutchison - TD Securities
Adrian Day - Adrian Day Asset Management
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the Altius Minerals Corp., Q3 2023 Financial Results Conference Call. At this time all lines are in listen-only mode. Following the presentation we will conduct a question-and-answer session [Operator Instructions]. This call is being recorded on Thursday, November 9, 2023.
And I would now like to turn the conference over to Ms. Flora Wood. Thank you. Please go ahead.
Flora Wood
Good morning, everyone. Thank you, Heena. Welcome to our Q3 2023 conference call. Our press release and interim filings were released yesterday after the close and are available on our website. This event is being webcast live, and you'll be able to access the replay, along with the presentation slides that are on our home page and under the investor information section.
Brian Dalton, CEO and Ben Lewis, CFO will speak on the call.
The forward-looking statement on Slide 2 applies to everything we say in our formal remarks and during the Q&A session. And with that, Ben is up first to take us through the numbers. Go ahead, Ben.
Ben Lewis
Thank you Flora. Good morning everyone. Thank you for joining. Royalty revenue for Q3 2023 was $17.8 million or $0.38 per share, compared to $26.2 million or $0.55 per share in Q3 2022. Adjusted EBITDA followed the trend of revenue in the third quarter with the overall EBITDA margin being 69% this year versus 84% in the third quarter of 2022. Again, following the lower revenue against relatively stable fixed costs. The Minerals Royalties segment had an EBITDA margin of 76% and 87% for the current and prior year, respectively. Both revenue and adjusted EBITDA were impacted by lower commodity prices, primarily potash and the scheduled closure of the 777 mine at the end of Q2 of last year.
Q3 2023 adjusted operating cash flow of $11 million, or $0.23 per share, compares to $25.9 million or $0.54 per share in the same quarter last year. The decrease again follows the trend of lower revenue, as well as slightly higher interest paid in current period. Net earnings of $3.5 million or $0.08 per share, compares to net earnings of $11.5 million or $0.22 per share in Q3 2022. Net earnings for the current quarter reflects lower revenues as well as higher interest costs and marginally higher G&A expenses in the Renewable Royalties segment, which added a couple of people during last year. In addition, current quarter G&A includes $537,000 for the purchase of voluntary carbon credits related to the 2022 financed emissions, which is based on our calculated share of operating royalties emissions.
Net earnings for the quarter was also affected by equity losses of approximately $2.9 million in GBR's investments in Blue Star and Nova. That's two development stage renewable energy businesses. Adjusted net earnings of $0.05 per share for the quarter decreased relative to $020 per share during Q3 2022. Main adjusting items are an unrealized gains on derivatives related to the revaluation of share purchase warrants and junior mining equities, foreign exchange losses and gains on disposal of mineral properties.
ARR reported its Q3 results earlier this week on Monday. Revenue from ARR continued to grow from the addition of several operating projects, which were acquired in the second half 2022, and another project is expected to reach commercial operations before yearend. Electricity prices increased in the current quarter due to warm weather and increased power demand in certain markets, in which GBR has operating royalty interest. On October 31, 2023 GBR, announced that it entered into a $247 million senior secured credit financing, which enables GBR to accelerate its growth trajectory in the renewable royalty sector while maintaining a competitive cost of capital.
This agreement referred represents another strong endorsement of GBR's business model. Brian will speak more on the strong progress at ARR, and you can review the recently published quarterly filings and investor conference call remarks on ARR's website.
I'll now turn to capital allocation and liquidity. We made our regular scheduled principal repayments of $2 million on our term debt during the quarter. We also paid cash dividends of $3.6 million or $0.08 per share to common shareholders and issued 10,860 common shares valued at $200,000 under the corporation's dividend reinvestment plan. The Board of Directors approved a regular $0.08 per share dividend that will be paid to shareholders of record on November 30, 2023, with a payment date of December 15, 2023.
The Corporation also repurchased and canceled 242 -- I'm sorry, 275,000 common shares under its normal course issuer bid for a total cost of $5.7 million during the quarter. In addition, ARR funded $4.7 million into GBR, representing its 50% portion of new and existing royalty investments. Our current liquidity consists of $63.2 million in cash at the end of Q3, and we have $93 million in unused revolver on our credit facility. ARR had cash of approximately $38 million [ph] in the quarter.
And with that, I'll turn it over to Brian.
Brian Dalton
Thank you, Ben. Thank you Flore. Some higher level observations and commentary for me today as per usual before turning it over to questions. Apologies in advance to fellow shareholders for anything that sounds like a broken record. But as I've said many times if a story is changing that quickly something's wrong.
Prices for most of our commodity exposures continued to hold at levels well below that required to incentivize new supply as the markets continue to be gripped by near term demand side concerns. Concerns that seem to be having trouble manifesting despite continuing to dominate sentiments. In the case of copper, the period of disincentivized growth capital investment has now crossed a full 10 years. Meanwhile, one of the most common features we have observed and following this quarter's reporting by the major producers has been production guidance downgrades, not to mention heightened geopolitical risk and increasing threats to existing major operations, as well as several notable pipeline projects.
It's all starting to lead us to wonder about whether the wildly projected looming copper supply demand deficit missed the memo that it wasn't supposed to show up until 2025 or 2026. All stay tuned on that. We also note with interest that one of the only big new projects to commission recently has updated its capital cost number once again. And the result is a CapEx intensity that is more than $13 a pound of new capacity.
At our Investor Day in the spring, we reveal that our estimated incentive price for copper had just crossed over $5 a pound on our numbers. But note that this estimate was based upon a production growth CapEx intensity estimate that was far lower in the $8 pound range, $13 closer to today's reality. We are very low on our adjunctive price [ph] cost.
Potash market, the most fundamentally fundamental non-commodity market that arguably exists, has obviously been on a wild ride on a short term basis. And this has played heavily into our recent revenue profile. I felt today it would be worthwhile to reset some context since this topic continues to be a hot one in our interactions with shareholders. Our potash royalties last year were well ahead of expectations because of the spike in pricing that occurred following the Ukraine war, and the market's uncertainty around supply availability from the major Russian and Belarusian producers.
The increased pricing drove global farmers to defer purchases and application to their soils. And as a result less potash was put the ground than was extracted or mined, if you will, to farming. In other words, soil potash levels have been depleted. It's all pretty simple math. There are key -- two key short term impacts in this dynamic. Firstly, lower purchasing caused prices to tumble back. And secondly and more fundamentally, agricultural yields have now decreased due to the nutrient-depleted soil So it should not really becoming a surprise to anyone, although it does seem to be the case, both of our Canadian mine operators have forecasted a strong rebound in demand back to trend line in 2024. This is based upon their early customer interactions and sales inquiries. World can't actually afford farm reductions, our overall food demand continues to increase.
Also farmers are recognizing that they're losing more revenue on yield reductions, than they save by buying less potash. Sales are now in serious catch up mode relative to fundamental demand and prices have stabilized and even begun to turn up in certain markets. And that's more than offset recent or short term turn of the potash markets, which while volatile obviously, has ultimately been working as it should.
Let's touch on the positive bigger picture potash outlook we've been consistently espousing before we move on. Nothing that has happened over the past two years has changed anything there. And in fact, the events have proven to be confirmatory. Around 2.7% more potash needs to be applied to global farms every year on average, to keep pace with increasing food demand. That a compounding 2.7% by the way. So run that forward, and today 70 million tonne global requirement grows by 20 million tonne to 90 million tonnes or so over the next decade, and by 50 million tonnes to 120 million tonne total in 20 years, and so on.
We laid out all of this out in our investor day materials earlier this year, together with some scenario analysis around what that will mean for underlying royalty volumes. We continue to fully stand by this work, with nothing from recent events that would make us alter anything. As I said the opposite is true. Hopefully this also provides context to our shareholders on how wildly overblown the markets fixation on the impact of BHP Janssen project, which aspires to very gradually introduce 8 million tonnes of potash into the market over the next decade or longer. The real question not being asked is one of where the rest of the needed tonnes will come from to keep the world fed. We believe our mines are going to play a key role in that.
Iron ore saw another decent quarter in terms of pricing. And it also seems that Mr. Memo that it is supposed to be trading far lower, as has been the case for most of the past seven years by the way. Overall, our revenues came in pretty close to our internal expectations, despite another tough quarter in terms of production at IOC. These guys have been having a hard time catching any breaks, but I do think they're putting in the effort and the capital to get the ship righted. We also continue to hear from Champion about continuing positive technical progress demonstrating the Kami can produce an ultra pure and ultra rare DR quality product as it nears completion of the project feasibility study.
I highly encourage our shareholders access Champion's quarterly newsletter that is available on its website. You get a better handle on the macro scale developments underway that are driving outsized demand for this type of material relative to more traditional types of iron ore. ARR made huge strides during the quarter in terms of advancing a pipeline of new royalty financing opportunities, and perhaps more importantly, in securing the liquidity required to execute upon these opportunities when it negotiated a new $247 million green credit facilities.
The equity and debt markets have really deteriorated for renewable sector more broadly over the past couple of years. Its need for capital and new production capacities continue to increase. It's a perfect storm of opportunity as far as we can see. And there's very strong parallels with events sentiment conditions that we and most of the other established mining royalty companies backup on so fondly when recollecting the 2015, 2016 period. ARR royalties continue to ramp up nicely. And this is coinciding well with the end of coal royalties stemming from our portfolio, we had hoped.
Genesee power plant is nearing completion of its conversion to gas in accordance with regulatory requirements. I should also point out that a hearing is scheduled in Alberta later today of our appeal of an earlier decision to dismiss our claim against the Government of Alberta in Canada relating to the de facto expropriation or Genesee royalties. We will keep you posted on how this goes once a decision is released.
Finally, on silicon there's not much new to report following the significant updates we provided last quarter. However, the operator has noted that it continues to expect to complete the resource declaration for the Merlin deposits, and the concept study for the expanded telecom project which includes silicon and Merlin deposits in the current quarter. It reiterated that the study is and I quote, evaluating opportunities to capture synergies from increased economies of scale and integrated infrastructure, for potential for large scale mining, end quote. We like the sound of that.
So that's it for my prepared remarks. We will now turn things over to questions. Thank you.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Adam Schwartz from Black Bear Value Partners. Please go ahead.
Adam Schwartz
Hi, good morning. Thanks for taking my question. Could you comment a little bit about your thoughts on capital allocation and aggressive -- the potential progressive levels of buybacks and how you weigh that versus saving for the future paying down debt, investing in new projects in the current climate? Just given where the equity is trading? Just curious how you think through those decisions?
Brian Dalton
Yeah, so when we think about the buyback, first and foremost, we look at it not in the traditional bucket of capital returns. We kind of assess it more like we would third party acquisitions, it almost falls more in an M&A type of a bucket. So yeah, price is definitely a function of how motivated we might be on the buyback, obviously, in accordance with liquidity and other factors. So yeah, it's just really we look at what we think the underlying value of the business is and how the market wants to price it in any given day. And that really drives our decision.
We've been, I think relatively aggressive throughout this year on the buyback, because again, when we are pretty constructive on a lot of developments that are occurring within our business, but that has been weighed at numerous times, I'd say over the year in terms of what is happening with debt service costs and those kinds of things. But generally speaking, we continue to be not that concerned about our debt levels, but we watch things closely there as market conditions change.
And so far, to-date, the decision has been to allocate excess capital to the buyer back to the full extent that we can. And as of today gave us the dynamic market -- but as of today, I would be feeling stronger about that than I would have a week ago. Hope that answers the question.
Adam Schwartz
It does. Thank you.
Operator
Thank you. And your next question comes from the line of Craig Hutchinson from TD Securities. Please go ahead.
Craig Hutchison
Hey, good morning, guys.
Brian Dalton
Hey, Craig.
Craig Hutchison
Just a question on the potash volumes per se. Obviously, we're seeing growth from Mosaic and nutrient. Any sense just based on the indications that they've made going into next year, what type of volumes you guys might see on your royalties in terms of maybe percentage growth coming year-over-year.
Brian Dalton
I won't try to quantify that directly. But I will point out a couple of items. There were some big turnarounds at the operations in the third quarter liquidity, particularly if you look at Mosaic. In order to meet that extra demand that came at them in the most recent period here they had to restart Colonsay and provide incremental tonnes there. But that was partly a function of a major turnaround that was underway at Esterhazy. And I think they've been pretty clear in their messaging that their preference is to maximize Esterhazy production when they can. But it's obviously difficult.
They're basically completing the ramp up of K3 and some deep debottlenecking work. I believe they're talking about mid next year that that could be fully complete. And so we'd expect more of their overall production to come from Esterhazy where our royalty exposure is going forward. And similarly, at Nutrien quarry was on big turnaround and whatnot. So they are all looking pretty hard at it just overall optimizing production. Going into next year they see this big demand surge.
So again, some of the muted volume this year was less a function of overall market conditions and more just operational decisions and project level turnaround type work that occurred at the operation. So taking advantage of low prices to do necessary work at the operations to tune them up for when markets are better. Pretty constructive on next year though.
Craig Hutchison
Yeah, maybe just a follow-up question just for the market conditions in general. I listened to the Opis Renewables call here today, sounds like there's obviously a flood of opportunities there, given some of the constraints for access to capital. And in your opening remarks, you kind of mentioned, some cost overruns we're seeing on the base metal projects out there as well. Are you starting to see opportunities, more opportunities in terms of the base metal royalties just given some of the capital overruns we are seeing and the cost of capital going up?
Brian Dalton
The mix elements to that, because I think as everyone else looks at other people's projects and big cost blowouts, they start to get more suspect of their own projects. In many cases, anyone that has, kind of stuck in the pipeline, their capital estimates probably are starting to feel very stale right now. And I would expect that not excited about what new numbers might look like. So there's a real hesitancy out there. There's no incentivization in terms of price. We're definitely below incentivization.
I think the real question now is just how far below we really are. So I mean, until operators can get more constructive on all forms of capital being available, there's just not much new project, finance work getting done that will give us kind of opportunity to play. We're continuing to look pretty hard at bigger picture, longer term development stage stories and trying to handicap just which projects in the world are going to be the ones that will fit into the deficit when it really starts to build up. And when incentivization pricing does arrive with sure demand.
And that's getting harder too because that added layer of not just the technical elements now, like the political risk has never been higher, at handicapping exercises. I'm telling you it's demand, copper is scary from one perspective and tremendously exciting on the other.
Craig Hutchison
Okay, great. Thanks. Thanks, Brian. Appreciate the comments.
Operator
Thank you. And your next question comes from the line of Adrian Day from Adrian Day Asset Management. Please go ahead.
Adrian Day
Yes, good morning, two quick questions. The shrinkage in margin, is that entirely due to the reduction in revenue? And then -- or are there other factors? And then the second question, I may have missed it. And if I do apologize, on Kami, when are you expecting the updated feasibility?
Brian Dalton
Thanks, Adrian. On the first one, on the margin, it is pretty much that because you know, there's a fixed cost component to the business when you consider that we maintain the project generation business at stable levels. In fact, we often step things up when things are uglier. Yet so some fixed costs relative to revenue. Cost don't go up dramatically when revenues go up, and they stay the same when they go down. So that's your margin compression right there. We've got some flex in that but we're not making big adjustments to the business just because sentiment is weak for a period.
As far as Kami goes, it's not perfectly clear as to when that announcement is going to come. I think on the last call, I heard from Champion they talked about maybe before the end of the year, not very early in the New Year, somewhere in that, pretty soon.
Adrian Day
Okay. Yeah, pretty soon. Thank you.
Operator
Thank you. [Operator Instructions] Ms. Wood, there are no further questions at this time. Please proceed.
Flora Wood
Thank you, Heena, and I want to thank everybody for joining today and for the questions. And we'll look forward to speaking to you after Q4 results.
Brian Dalton
Thanks everyone
Operator
Thank you. Ladies and gentleman, that does conclude our conference for today. Thank you all for participating. You may all disconnect.
For further details see:
Altius Minerals Corporation (ATUSF) Q3 2023 Earnings Call Transcript