Triple Flag Precious Metals Corp. Q4 FY2023 Earnings Call

Ladies and gentlemen, good morning. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Triple Flag Fourth Quarter and Full Year 2023 Results Conference Call. Today's conference is being recorded, and all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. And I will now turn the conference over to Shaun Usmar, Chief Executive Officer. Mr. Usmar, you may begin.

Thank you, and good morning, everyone. I appreciate you joining us to discuss Triple Flag's fourth quarter and full year 2023 results. I am accompanied by our CFO, Sheldon Vanderkooy, and our Senior Vice President of Corporate Development, James Dendle. Our business continued to perform strongly in the fourth quarter, with sales of approximately 26,000 gold equivalent ounces, leading to $38 million in operating cash flow for the quarter. For the full year, our portfolio achieved sales of just over 105,000 gold equivalent ounces, staying within our guidance range and setting a new record for Triple Flag. This strong performance resulted in $154 million in operating cash flow and $159 million in adjusted EBITDA for 2023, both representing new records for the company. In December, Evolution Mining acquired an 80% interest in the Northparkes copper-gold mine in Australia, where Triple Flag retains a 54% gold stream and 80% silver stream. Evolution has a solid history of operations in Australia and is set to continue developing Northparkes effectively, following the high standards established by the previous management. Northparkes is a world-class asset with a multi-decade mine life and substantial exploration potential. We anticipate that the high-grade E31 deposit will significantly boost estimated stream deliveries for the asset in 2024. Furthermore, several of our over 200 development and exploration stage assets are advancing, marked by exploration successes at Hope Bay and updated economic studies at Kone and Eskay Creek. Looking ahead to 2024, we are setting a guidance range of between 105,000 and 115,000 gold equivalent ounces while reaffirming our five-year outlook of averaging over 140,000 gold equivalent ounces. This continues Triple Flag's history of leading growth in gold equivalent ounces over the past seven years, where we've achieved a cumulative annual growth rate of more than 20% since 2017, continuing short- and medium-term growth that notably exceeds our intermediate peers for comparable capital deployment, which we have reiterated at an annual average of 140,000 gold equivalent ounces. I will now pass it over to Sheldon to go over our financials for the fourth quarter and full year 2023.

Thank you, Shaun. We had a strong fourth quarter with the portfolio producing over 26,000 gold equivalent ounces, which resulted in us achieving our full year 2023 guidance with a final total of over 105,000 gold equivalent ounces. This resulted in records for both revenues and operating cash flow during 2023, supporting our investment thesis for the Maverix transaction more than a year ago. Operating cash flow per share is a very key metric for me. And I'm pleased to say that we increased slightly for the year from $0.76 per share to $0.77 per share. This reflects accretive growth for the year. It was a solid quarter and a solid year. Our dividend has been maintained at $0.21 on an annualized basis, which resulted in Triple Flag paying out over $40 million in dividends to shareholders in 2023. We have increased our dividend every year since our IPO. And as the year progresses, we'll consider the potential to continue that track record. In addition to our dividend, we also returned over $28 million to shareholders via share buybacks. As of December 31, 2023, we have 9.9 million shares of remaining capacity under the current NCIB. I'd also like to comment on our strong balance sheet. We exited 2023 with just over $40 million in net debt. In Q4, we had operating cash flow of $37 million. So our net debt represents just over one quarter's cash flow. This positions us very well, allowing us to make capital allocation decisions to benefit shareholders through new acquisitions, share buybacks or dividends. Our portfolio has shown consistent growth since our inception. 2023 was a record for operating cash flow, free cash flow and adjusted EBITDA, each increasing significantly from 2022 and due to the acquisition of Maverix Metals as well as other royalties acquired during the year, such as Dargues and Agbaou. Consistent margins result in efficient translation of revenue and the cash flow available to shareholders. Our portfolio has significant embedded production growth. As production grows and further aided by a beneficial gold price environment, we expect our free cash flow to grow due to both the price and volume impact. We have highlighted three very important aspects of our portfolio, namely asset diversification, precious metals focus and a portfolio that is predominantly centered in the Americas and Australia. Our revenue is well diversified across our portfolio. Cerro Lindo and Northparkes are our biggest contributors during the year, representing 22% and 14% of annual revenue, respectively. Cerro Lindo was our first investment. In 2016, we invested $250 million in a silver stream. I am very pleased that in Q4, we achieved a significant milestone of having recovered all of our initial investment in Cerro Lindo. Demonstrating the strength of the streaming model, Cerro Lindo has a current remaining mine life of over eight years. We're going to benefit from this stream for a great deal of time to come. And my expectation is that overtime, mine life will continue to be extended as it has in the past. Moving on, the investment thesis for Triple Flag is for a strong pure-play royalty and streaming company focused on precious metals. This has not changed since our inception in 2016. Gold and silver account for roughly 95% of our revenues, amongst the highest in the sector. Our portfolio is centered in mining-friendly jurisdictions, jurisdiction matters. Our single greatest country concentration is in Australia. Our Australian producing assets include Northparkes, Fosterville and Beta Hunt as well as a number of smaller contributors, including Dargues. I'd like to now turn to our production growth since we were founded in 2016. In 2017, we produced 33,000 gold equivalent ounces. By 2023, that had increased to 105,000 ounces, a three times increase and a compound annual growth rate of over 20%. Looking forward, we expect this growth to continue in 2024 with our 2024 guidance being between 105,000 and 115,000 gold equivalent ounces. We also expect this growth to continue for the next five years as we are expecting our gold equivalent ounces to average over 140,000 ounces from 2025 to 2029. Importantly, this is by organic growth from assets already within our portfolio and does not include any additional acquisitions that may occur. This production growth will efficiently translate into increased cash flow for shareholders. Turning now to additional guidance on financial metrics. We've already stated our GEO guidance of 105,000 to 115,000 gold equivalent ounces. This is driven by our expectation of significant growth from Northparkes due to the processing of higher gold grade open pit material at E31 and the E31 North, which Shaun will discuss further. Depletion is expected to be between $70 million and $80 million, higher than the prior year given the growth in gold equivalent ounce production while our G&A will be between $23 million and $24 million. Finally, our Australian cash tax rate for our Australian royalties will be approximately 25%, consistent with the 24% rate that was realized in 2023.

Thanks, Sheldon. I just want to spend a moment talking a bit about Northparkes as a cornerstone asset. As mentioned, Northparkes was acquired by Evolution Mining in December of last year. Northparkes is positioned in Evolution's backyard and in one of Australia's most prospective gold copper belts in New South Wales, which I will highlight in a later slide. Evolution brings significant expertise in large-scale underground caving operations from its Ernest Henry mine having a skill set and experience that is well suited for a large-scale porphyry operation such as Northparkes. As you can see on the next slide, mining of E31 open pits and Northparkes is well underway, and we expect these higher gold grade pits to contribute materially to our gold equivalent ounce profile starting this year. You can see that Evolution has had great success with developing and optimizing prior acquisitions like the Cowal mine, which isproximate to Northparkes. Since acquiring the mine in 2015 from Barrick, Evolution has successfully delivered sustainable production, reserve and resource growth and major capital projects. The savvy approach to investing and adding mine life and capacity to create shareholder value in a mine regionally proximate to Northparkes bodes well for our interest in this mine with our new partner. We're excited to help investors appreciate the world-class nature of our gold and silver stream on this cornerstone asset as Evolution demonstrates what value they can unlock in the years ahead.

Thanks, Shaun. Touching on one of our exploration assets that has generated significant news flow for the last year. Hope Bay is a multi-deposit gold project operated by Agnico Eagle, of which Triple Flag holds a 1% NSR royalty. Agnico is undertaking an extensive exploration program at Hope Bay with 2023 drilling totaling more than 125,000 meters and a 2024 exploration budget of $22 million, focusing on high potential areas of Madrid and Doris. The results from an internal technical evaluation are expected to be reported in 2025, targeting a larger production restart scenario. You can see the size of the land package at Hope Bay and the multiple deposits and exploration targets that Agnico Eagle has identified. Of particular interest is the target area in the vicinity of Patch 7 in the center of the long section, which has delivered strong results, including 16.3 grams per tonne gold over 28.6 meters at a depth of 385 meters and 12.7 grams per tonne gold over 4.6 meters at a depth of 677 meters, as well as the exploration and development stage assets that we were excited about when acquiring Maverix Metals. We're happy to see our thesis play out and look forward to seeing Agnico Eagle continue to develop this project.

Thank you. So as the snapshot demonstrates, Triple Flag's outlook is overwhelmingly positive. With our ample firepower of roughly $660 million in available liquidity, and a broad base of 235 assets, our eighth consecutive sales record projected for the year ahead with guidance of 105,000 to 115,000 gold equivalent ounces 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 our prudent capital allocation decisions. With the board and management team being large shareholders ourselves, we are completely aligned in ensuring the best outcomes for all stakeholders and are looking forward to what 2024 has to offer. So with that, Abby, please open the floor to any questions.

Thank you. We will take our first question from Cosmos Chiu with CIBC. Your line is open.

Thank you, Shaun, Sheldon and James. And congrats on a very strong 2023. Maybe my first question is on Northparkes. Good to see Evolution taking over Northparkes and Shaun, you talked about some of the benefits. But I'm just wondering, still early days, but have there been any positive changes at Northparkes that you can share with us?

Thank you for the kind words. I have a fantastic team that we're very proud of and what they've accomplished. Regarding Northparkes, I want to acknowledge the journey we've had. While we've enjoyed strong access and disclosure at Northparkes, our partners at China Molybdenum didn't provide the same level of reporting that we expect to see from Evolution. It's only been a month since Evolution acquired the business, and they've just released compliant reserve statements. We anticipate that in the coming months, they will be eager to share their studies and plans. It's too soon for us to get ahead of them, but the business has multiple ore bodies and is well positioned. E31 and E31 North have performed exceptionally this year and are set to contribute significant growth in gold ounces for our portfolio. We will be having dinner with the team on Sunday night to get more updates, and we will keep the market informed. Conceptually, a standout royalty in our sector is Malartic. If you think about this asset with a longer lifespan, it has a similar net asset value to our company, akin to Cisco, but with a growing ounce profile and longer life, even before Evolution engages. I expect that Evolution's track record and their disclosure obligations will prove beneficial in the coming weeks and months.

Yeah. I'll just reinforce Shaun's point, see them as a tremendous operator and they've run Northparkes very, very well. Many of the operating team are consistent from Rio Tinto to now on to Evolution with a few changes here and there. But really, there's some similarity in the operating. If you look at Evolution's comments publicly, they're focused on the plan as expected. They point to the size of the mineral inventory. As a reminder, we're talking about a 0.5 billion tonne resource that's currently being chipped away at 7.6 million tonnes per year. So there's scope to maybe grow that throughput given the size of the mineral endowment. They've also stated a focus on immediate drilling to target near mine mineralization at the surface. We think they're looking at it exactly the right way. We've always been convinced that certain exploration will play an important role at Northparkes. So I think that reflects quite well with regards to how Evolution is looking at the asset, but we'll see how they go with disclosing their plans over the course of the year.

Great, thanks.

I'll give you a flavor. Watch this space, there should be more to come.

Of course, yeah. And maybe as a follow-up, on the MD&A yesterday, you mentioned short term and Northparkes, the growth is coming from E31 and E31 North the open pits. Longer term, it's potentially coming from the E22 underground. Could you maybe help us understand or describe once again the evolution of the asset, the sort of life of mine of the open pits and what needs to be done in terms of the underground and then just kind of wrap it all together for us quickly, if possible?

Sure. James, do you want to add?

Yeah, sure. And this is a good refresh. If you think about Northparkes historically, it was a series of relatively small open pits targeting similar mineralization back in the mid-90s. Over time, those pits have been developed. At that time, it was North and Rio Tinto that discovered the deeper porphyry system beneath the pits. The mine has transitioned progressively from shallow open pits to sophisticated block caving. New mines are now a series of block caves predominantly supplemented by open pits. There are numerous open pit targets across the property. So we'd expect some contribution of open pit to continue into the future. But as you know, the real sustained growth is from the development of E22. And when you look at E22, we're talking about a grade that's quite in excess compared to the current mine grade. The open pit E31 is relatively small and short-lived, and will provide production this year and into the next part of 2025. But really, the set of sustained gold output is from E22, which is an important development that I know Evolution is also focused.

Just to James' comment, I think part of the thesis we had, which you alluded to when we did the transaction, is ensuring that we have full exposure to the over 1,000 square kilometers of land package. The surface manifestation of those reserves are only on a fraction of the land. So there’s a lot of opportunity for more undiscovered material at depth. We're very excited to see what Evolution can do.

Great. Thanks, again, Shaun and James and Sheldon. Those are my questions. Thanks, once again.

That’s great. Thanks, Cos.

We will take our next question from Anne Jakusconek with Scotiabank. Your line is open.

Everyone. I think that's me Tanya, it’s not Anne. But good to be Anne today. Question for Sheldon first and then over to you, Shaun, on just the transaction environment. Sheldon, I was a bit surprised about the G&A levels this year. I thought we were going to start to see some of the synergies from the Maverix transaction on the G&A. Would you be able to just talk to us a little bit about how you see your G&A going out? I was just a bit surprised I thought we'd see a bit of synergies.

Yeah, Tanya thanks. And when you saw with the G&A, are you talking about the 2023 or the guidance going forward?

Guidance. I didn't really expect it to see it in 2023. I thought we would start seeing it in 2024 and beyond.

Yeah. So first, we actually have completely delivered the $7 million in synergies. You can get there by looking at the executive team spend at Maverix, the board costs coming down, audit, insurance, office space, etc. That $7 million has been fully realized. There are a couple of impacts you're going to see as we go forward. Remember, historically, we're a private company. We went public on the TSX and we also started to experience the New York listing costs. There are additional costs in that regard, which includes D&O costs and just other compliance costs. We also became subject to SOX this year, so you'll see our audit report looks a little different. We're fully compliant with SOX in 2023. That's an achievement for the team, but it comes with additional costs and expenses. The other thing is that some of the non-cash equity compensation from an accounting point of view gets treated over a number of years and results in a catch-up effect. But I think we're really coming off to what our run rate is on the G&A front. Even after we grow the portfolio, we wouldn't expect the G&A to grow accordingly.

Okay. So we should be thinking of this level going forward?

Yeah, that's right.

Okay. Thank you for that, Sheldon. I wanted to just talk a little bit about the transaction environment, if I could. Just what are you seeing out there? This morning, we've had Newmont put eight assets on the block. Could you see yourself participating in those asset sales? Some are in Ghana, some are in Australia, some are in the U.S., Canada, just your thoughts on this environment and your opportunities.

Yes, Tanya, if you take a step back, the answer to your question is yes, there is both the potential and the interest for sensible partnerships, and we would certainly consider that. When I observe the current deal environment, while it may not replicate the unique conditions of 2014, it's starting to resemble that period somewhat. We are noticing various sectors facing liquidity challenges, with some significant issuers experiencing notable price drops, excluding precious metals, of course, but affecting polymetallics and similar areas. The current state of equity capital markets isn’t particularly supportive for the sector, and valuations are under pressure, which actually seems to be increasing the number of available opportunities. We're encountering some promising bilateral opportunities that could range from tens of millions to hundreds of millions of dollars. Just in the past day, I've received inquiries regarding situations made feasible by the conditions I described. However, I must reiterate a point I emphasized even a year ago regarding the relationship between opportunity and responsibility. While we are seeing interesting opportunities, we remain very aware of the overall liquidity risk in today's interest rate environment. We are dedicating considerable effort to assessing what could happen if things do not unfold as planned, extending our analysis beyond simplistic expected returns and the usual considerations you would expect from us.

And what would the size range be? What would be the upper end of what you would be comfortable doing with your balance sheet?

I mean, there are some hard to predict probabilities, but some that are in excess of our financing capability, where we might consider partnerships. We are seeing several, in the good return bracket, sort of tens of millions to sort of $100 million to $300 million type transactions, which for us is pretty easily financeable.

Yeah, we could handle something over $500 million. That would be more feasible. Go ahead.

I mean, as you'd appreciate, Tanya, the team on this call has a lot of shares in the company. The idea of incurring dilution for the heck of it isn't a great idea. You'd have to have something interesting of scale. If there was a generational opportunity, you'd obviously think long and hard about that. But in our eight-year history, it is the gram of opportunities. The largest actual pure precious streaming opportunity with Northparkes. We could do Northparkes today again, with our capability with the additional cash generation that comes in. Could we see larger transactions? Certainly. We just haven't seen such opportunities in the last eight years.

Okay. Great. Thank you so much.

Yeah. Thank you.

And we have no further questions at this time. So I will now turn the call back to Mr. Shaun Usmar for closing remarks.

Thank you. I think the questions we've got reflect quality over quantity, which is wonderful. I think this is probably a reflection of what should be straightforward and a good set of results. I'll end by just saying thanks again to my team, our Board, our partners and our investors for their trust. I think it's been a great year. I think when you step back and consider the outlook we've just provided in the context of the sector, it should show quite well. I'm truly appreciative of the platform we have. It's simple. We've delivered significant growth over eight years now. We have a lot of firepower, like $50 million of debt basically on the balance sheet at this stage. And a cash run rate trailing at about $160 million. We’re extremely well positioned, and I’m excited for what lies ahead. So thank you very much. I wish you well for the rest of the day.

Thank you. And ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.