Elemental Royalty Corp (ELE) 2025 Q1 法說會逐字稿

Thank you, everyone, who is coming today for Elemental Altus' Q1 2025 earnings call. We're just giving it a little bit of time as we've got a few people still joining. But in the meantime, thank you for those all the way in Vancouver morning time. And I see we've got some Australian shareholders as well. So we're represented across the different time zones.

And today, you have got myself, Frederick Bell, the CEO of Elemental Altus and you've got David Baker, our CFO, who is going to take the majority of this call and walk you through.

Look, it was -- I think we're good to begin now. And I would say that Q1 2025 was the strongest quarter in the company's history. We had record adjusted revenue of USD13.3 million. And for comparison, Q1 in the equivalent period 2024 was $4.7 million. And on top of that revenue, subsequent to the quarter end, we received approximately USD9.6 million related to the mainstream that we had.

And I think it's worth mentioning, our newest producing royalty Korali-Sud that also made a strong contribution this quarter, and that was about USD6.6 million. And it puts us in a position today where we have over $70 million available to the company in non-diluted capital to deploy and that is from a combination of cash and undrawn credit facilities. And that is, by a long distance, the largest in the history of the company. And it's worth mentioning that we do have flexibility. We have a normal course issuer bid that we put in place earlier in the year and is available for us to use going forward.

A bit more detail and color on some of the numbers coming out from Q1. So it was a record, both in terms of revenue, EBITDA and operating cash flow. We had Q1 royalty revenue of USD11.6 million and the adjusted revenue, as mentioned, was $13.3 million. And for those not so familiar, the adjusted revenue includes our Caserones royalty. And that is up about 179% on the equivalent quarter in 2024.

We had Q1 adjusted EBITDA of circa USD11.5 million, which is up 259% on the same period in 2024. And then the Q1 adjusted cash flows from operations was USD3.3 million, up 182% on the same period in 2024. I would just note that the difference between the revenue and the cash flow there reflects the fact that typically, we get a lot of these royalty payments post quarter end, and they convert into cash flow from operation in the following quarter.

In terms of gold equivalent ounces then, that was another record at 4,606 gold equivalent ounces for the quarter, up over 100% from the respective period in 2024. The company remains on track to meet its guidance for this year. And just to reiterate, our guidance was 11,600 to 13,200 gold equivalent ounces, about a 38% increase from 2024 at the midpoint. And for that guidance, we're using a $2,600 gold price and a $4 copper price.

We expected our 2025 adjusted revenue to be between USD30 million and USD34 million approximately. And at the midpoint, that's about a 50% year-on-year increase in adjusted revenue. Clearly, we've seen the impact of higher commodity prices coming in over Q1, but more particularly coming into Q2. And the longer that stays above our guidance level of $2,600 gold and $4 copper, we expect to see a very positive impact on the revenue numbers coming in.

And then in terms of Korali-Sud, that generated, as we said, $6.6 million in the first quarter, and that was about 2,309 gold equivalent ounces. I would note that, that production covered the period coming from Q4 last year into Q1 in the first sales, but it's a really important milestone for us. And as a reminder for people, this is an asset that we sold to Allied Gold. They've brought very quickly into production. And this has been the first time that we have got a royalty payment from it. And I think we see a lot of potential for it going into the future, and we can talk to that.

We also have some milestone payments related to the royalty, and those are both on commercial production and also subsequent production milestones as it progresses. And so look, at the end -- post the end of the quarter, as of today, 20th of May, we have over USD22 million in cash plus undrawn credit facility.

Then I will touch on this slide on Korali-Sud and hand over to David Baker, our CFO. So this is our newest royalty, and as we said, made a really material contribution in Q1. It is a 3% net smelter return royalty on the licenses highlighted in that map there, called Korali-Sud and Lakanfla Central. And look, we had Allied started production from this in Q4 '24 and continue through an ongoing production there. And this first royalty payment really reflected production from that Q4 and Q1 period combined. So expecting the contribution from Korali-Sud to be heavily weighted to H1 2025 for us.

But I think what is really encouraging here is, I think, the lack of exploration that has really gone on across Korali-Sud and Lakanfla historically and the opportunity for Allied. And we sold this asset approximately, I think, a bit over 18 months ago to Allied. And in that time, they have managed to declare a maiden measurement indicated resource convert to reserves. They have got a mining convention with the government. They have started their first mining under the new code, which they had to negotiate in parallel, and they've got it up in Q4. They did just under 50,000 ounces just from Korali-Sud.

So I think in terms of the geological prospectivity, it's excellent in terms of the asset. I think it's a lot of potential for us going into the future. And as Allied continued to advance the ground and explore it, I think even though it is partial coverage and we'll have displacement risk on this royalty, I think we see a lot of value for it over the medium to longer term going forward.

And with that, I will hand over to Dave to walk through some of the details on the financial side.

Thanks, Fred. Yes, portfolio continues to be underpinned by two cornerstone cash flowing assets and royalties, Karlawinda and Caserones, both in the quarter delivered strong operational performance and then that continuing upside potential. At Karlawinda, we had gold production of over 30,000 ounces. That led to over USD1.8 million of revenue. That was driven by higher-than-expected volumes from the Bibra open pit combined with record gold prices.

Capricorn itself has maintained production guidance of 110,000 to 120,000 ounces of gold for the year to June 2025. So in line with our estimates. And as we've spoken to you previously, Capricorn have announced a major expansion at Karlawinda targeting 150,000 ounces of gold annually. That's a 30% increase on what they're currently doing, while still maintaining that current 10-year mine life, which we think has plenty of room for expansion.

Caserones also shown a strong performance in the quarter. Revenue of USD1.6 million, that benefited from higher mill throughput and some of those delayed December shipments that we've spoken to you previously, that were completed in Q1. Lundin has reiterated 2025 production guidance of 115,000 to 125,000 tons of copper, and that's pretty consistent with previous years. These two royalties are 1/4 of our cash flow base.

We've got clear visibility on growth and mine life expansion, which leaves us well positioned to benefit from both commodity upside and operational scale. We also see strong contributions from the border portfolio in spread sales, including the commencement of revenue from Korali-Sud, continued strong performance of Bonikro, and also I'd like to give you an update on Wahgnion.

Bonikro contributed Q1 royalty sales nearly 19,000 ounces, slowing slightly year-on-year, but we'd expect stronger performance ahead as Allied expects to process high-grade material from H2 2025 through 2026 and 2027. So we're expecting that to drive growth in our royalty revenue over the short and the medium term. As we've spoken to, we had first revenue from Korali-Sud in Q1 2025 with 80,000 ounces -- more than 80,000 ounces of royalty attributable ounces sold, and that includes some of the catch-up sales from Q4 2024. We are expecting our revenue from Korali-Sud to be heavily weighted towards the first half of this year, but we are expecting updates from Allied in terms of future production performance from Allied.

At Wahgnion, Wahgnion is currently undergoing an external audit following the sale of the mine to the state of Burkina Faso from Lilium and then Endeavor. And they have put a temporary pause on royalty payments. We haven't received the Q1 royalty statement. So as a conservative approach, we haven't accrued revenue in Q1. But once we receive that statement, that royalty revenue earned in Q1 will be recognized once statements have been received.

We are in active dialogue with the management team at Wahgnion and their external auditors. I've spoken personally to the external auditor. And based on those discussions, we expect payment in 2025. We see Wahgnion as a timing issue rather than a frustration issue, and we'll just keep shareholders posted on payments at Wahgnion.

In terms of Q1, understandably because of Korali-Sud, it was a record quarter for Elemental Altus. Adjusted revenue up 179% year-on-year to USD13.3 million. I would just note that Caserones has reported separately due to our equity accounting treatment. As a result, we had a 102% increase in gold equivalent ounces over the quarter. Adjusted EBITDA rises to nearly 260% to USD11.5 million, profitability scaling alongside our revenue.

We had delivered a net income of USD3.4 million compared to a loss last year. And cash flow was also robust. Operating cash flow is up 182% to USD3.3 million. Record revenue, record profitability, record cash flow.

Q1 marks a step change in our growth trajectory, which is in line with our estimates, but really underscores the strength of our royalty model, demonstrates the cash generated power of our portfolio and sets that strong foundation to 2025.

We generated USD3.2 million free cash flow in Q1, as you can see in the waterfall chart there, see that as a really solid result with some timing-related considerations. As Fred spoke to at the start of the call, that $7.5 million working capital movement mostly reflects the timing of issues of Q1 revenue, cash receipts falling into Q2. So we'd expect that to be all caught up in Q2. And as I said, we've got that Korali-Sud cash here in the bank. G&A expenses in line with expectations, and interest costs were down 80% -- 86% year-on-year, thanks to our ongoing debt reduction, and we are debt free as of the end of the quarter.

Ended Q1 with USD4.8 million in cash, up from $4.5 million, and that includes fully repaying the remaining $3 million of debt that we had on the facility at the end of the year. So we are fully debt-free, full $50 million available on that facility. Free cash flow grew more than 5x quarter-on-quarter, reaching $3.2 million. That's driven by strong royalty income and lower costs.

So Q1 marked a major uplift in operating financial performance, strong margins and growing profitability across the board. Operating profit reached USD4.4 million, reversing a small operating loss a year ago. That's driven by higher revenues, in line G&A and no expense transaction costs for the quarter. We also saw a significant increase in adjusted EBITDA to USD11.5 million for Q1. I haven't included this on the slide, but that $11.5 million compares with $15.1 million for the whole of 2024. So nearly caught up to all of 2024 in one quarter for the year, so really sets us off for an excellent 2025.

Q1 2025 is strongest quarter in the history of the company. Adjusted revenue more than doubling to $13.3 million, and that's driven by that material contribution from Korali-Sud. Likewise, we got that new record-high gold equivalent ounces of 4,600 GEOs, doubled year-over-year. This is a significant inflection point for the company, continued tailwinds going forward from stronger gold prices and cash flowing royalties.

We are seeing a margin increase as revenue scales. EBITDA margin of 87%. That's a record for the company, driven by increased revenue and cost discipline. I mean, even with that Korali-Sud larger revenue for the quarter, the chart clearly shows an upward trend in both EBITDA and margins over the past year. And that's a real testament to our portfolio scale, our operating leverage and cost discipline.

Our cash flow growth remains strong with further upside ahead as we've received Korali-Sud receipts and higher gold prices are flowing through Q2 and beyond. In terms of the corporate structure and the balance sheet, we've got $50 million of available credit from three large Canadian banks. That's National, CIBC and RBC. We have no debt on the balance sheet. So that's fully undrawn and available as of today, and USD22.6 million in the bank as of today.

That gives us excellent flexibility for non-diluted growth. We had a strong institutional shareholder base as we've spoken to you before. Market cap, about $250 million as of today. EV about USD225 million. I think that presents a compelling valuation versus our peers, and it also gives us a great positioning to move quickly on the right royalty opportunities.

And then on that basis, I'll give back to Fred to summarize and then we'll hover in for Q&A.

Look, thank you, David, and also the team to bring up together all the work. Where it puts us is it puts us in a position where 2025 will be a record year, both in terms of gold equivalent ounces, but also with the corresponding exposure to the gold price and that leverage to it day to day. And I think where the gold price is today gives us material room for improvement on the guidance in terms of revenue numbers that we had at the start of the year. We also have the milestone payments, of which we're expecting the majority to land in the first half of the year, and we have received that first large payment on the mainstream.

In terms of the portfolio, we continue to be anchored by two really high-quality uncapped royalties in Caserones with Lundin Mining in Chile and Karlawinda with Capricorn Metals in West Australia. We have continuing growth from the portfolio with the addition of the second half of the AlphaStream portfolio contributing coming into 2025 with the first revenue from the Korali-Sud royalty, and then looking ahead, actually even into 2026 with the expansion underway at the Karlawinda Gold project.

We have a track record of value-creating transactions. And if you look at our presentation, we update that as every quarter goes by with revenue numbers that we can incorporate. And I think what it shows is, over time, those returns tend to get better, and it shows the value of the royalty model and the value of the optionality that comes through that.

We are -- in terms of financial positioning and positioning to transact on opportunities, we are in the strongest position the company has ever been in. And to put that into perspective, I think the company deployed approximately $18 million in the first four years of its history. And we have more than that in the bank today, and we can deploy up to $70 million without needing to raise any further capital. And if you look at the opportunities in front of us, I think that where we are today, the same team that we have here would be able to manage a portfolio that is materially larger than what we have today at really insignificant additional cost.

And so that margin expansion that we see in this quarter, and we'll see in the next quarter, that is, I think, part of the benefit of a model like this where you can scale the business really quickly. And then compelling valuation and entry point, and quite aside from the producing assets that we have and aside from the development and exploration portfolio, which we really don't talk to in this presentation and the progress that is being made and the partners who are drilling and adding value across our licenses there.

I think the other point that is worth mentioning is also the current gap between the long-term consensus gold price and where we are at spot gold. And we don't make predictions in the long term going forward on the gold price. But what we can say is that every week, every month, the gold price stays above the consensus and above where our guidance is. We have a portfolio that is immediately leveraged and benefits from that.

So look, I think that is really the conclusion there of the presentation and a summary on the company, and happy to take any questions if there are some.

Thanks, Fred. We've got -- we'll lead off with one question, which is on Korali-Sud. Just a breakdown of ounces for Q4 and Q1 and the expected quarterly run rate. I can kick off with that.

So in terms of the production line or the sales -- royalty sales because we're paid on sales, not production. We had about 49,000 ounces that was unsold in Q4 that contributed to Q1, and then say approximately 80,000 ounces that were in Q1. So that would be the difference. So we're looking at approximately 30,000 ounces in Q1. We don't guide on an asset.

We don't guide any -- we don't guide revenue or GEOs by asset. But we had approximately -- based on discussions and publicly available information from Allied, we had about 100,000 ounces for the year from Korali-Sud in terms of our internal expectations. So we're about 80,000 ounces of that at the moment. Again, I still expect that to be weighted to the first half of the year.

I would say that does leave a lot of room for the exploration upside, co-mingling potential of Korali-Sud as well. So I think there's upside to that. So say about 49,000 ounces -- 40,000 ounces in Q4, about 31,000 ounces in Q1, and then we're expecting about another 20,000, 25,000 ounces for the rest of the year. But again, we're still awaiting updates from the operator on the upside there.

Hi Brian. A simple question from Brian MacArthur. Hope you're well. I'll talk about cash flow from Wahgnion. We didn't book revenues in Q1.

When do we let our last cash payment and how much is owed? Thanks, Brian.

So we received a cash payment in Q3 2024, and that was related to Q2 production. So the current receivable on the books relates to Q3 and Q4, that's just a bit over $1 million in post-tax revenue, and we have booked that as a receivable. And so, we haven't booked anything in Q1. So our view is that, that receivable is full and payable. We've had nothing to the difference from either the company's external auditor or the operators. So we're looking to get those payments restarted post audit.

Fred, I might pass this over to you. Another question from Pierce. Do we have (inaudible) gold for metals exposure long term? Is that gold, is that silver? Is that anything else?

Okay. It's a good question. Thank you, Pierce. And I think that currently, we have approximately 85% in terms of our revenue exposure to gold and 15% to copper. And our portfolio has a heavy weighting to copper with some of the development assets.

I think that long term, we'd like to keep the majority of the portfolio weighted towards precious metals and include silver in that and not as many silver opportunities in the market, as we have discussed. But it is primarily gold and silver.

But I think what it does do and where we are today is it also allows us the flexibility to opportunistically look at assets and royalties that are in different commodities where we see compelling value. And so broadly speaking, that is how we'll approach it, which is a focus on precious metals, but also a willingness to look at other opportunities where we see really compelling value and with the basis that we have the majority of the portfolio weighted already towards precious metals.

Great. And then there was one question, Dave, just in the chat from Adam, which was around the -- thank you for the comment, but it was also around the $10.8 million that's accrued royalty income and how much of that is related to Wahgnion.

Yes. So thanks, Adam. So it's an excellent question, yes. So we've accrued nothing for Wahgnion for the quarter. We've taken a conservative approach given that we don't have the statements available.

Certainly that was a very considered approach by management. We decided to take a very conservative view there. But what we would look to do is when we have those statements available to us that we will accrue that revenue in a subsequent quarter. So yes, at this stage, we've accrued no revenue in Q1 for Wahgnion.

And it might just be worth saying that we have accrued approximately USD1.1 million in post-tax royalty revenue from Wahgnion today. Dave, correct me if that's --

Yes, correct.

But we have not for Q1.

Yes, exactly right.

At the moment, that is all the questions we have. So I'll just ask if anyone else has a question, please add it. Here we go. Yes, we have a question here from Mark. Thank you, Mark, relating to, can you talk to any promising developments in the nonproducing royalties perhaps looking ahead over the next 12 months?

Look, I think that is a good question because we don't often get the chance to talk about the other 60 to 70 royalties in our portfolio. I think on these quarterly calls, the focus is largely on the producing assets and the cash flow, but it is a large part, the majority of our portfolio actually on assets that are in the preproduction stage. And I think there are some exciting events in some of those, and one or two we can perhaps talk to in a bit more detail, maybe two development assets that we have acquired in the last 18 months.

One of those is the Cactus copper royalty with Arizona Sonoran. And that is a project where we bought the royalty approximately 18 months ago. We have seen the metal in our royalty area approximately triple over that period. We have seen Hudbay coming as a strategic investor alongside Rio Tinto and also Tembo. We have seen the company, I think, make a lot of progress across studies, both incorporating Nuton, which is a technology Rio Tinto have incubated, but also looking at more traditional processing routes.

And we recently saw, I think, in two to three months ago, Royal Gold actually come in and acquire the sister royalty to us at about a 65% higher price.

So I think that is a good demonstration of the value-add on one of those assets where I think we're continuing to see a lot of progress being made over the course of this year. And maybe another one that we acquired last autumn, which was the royalty on Mactung. And at the end of last year, we saw the announcement of approximately USD25 million in funding from the U.S. government DoD and the Canadian government provisionally to fast track that to final investment decision. And I think they're targeting a feasibility study for 2027.

And from our point of view, look, that is a really good catalyst there. That is a project that unusually has seen six or seven years of permitting done in Canada. So the time frame for taking that project from feasibility through to construction and FID is a lot shorter than it would be comparatively for any project without that.

So those two, I think, really good examples where recent acquisitions on the nonproducing phase, and both of those have seen significant catalysts. And in one case, in the case of Cactus, actually a market precedent transaction at a significantly higher price than what we historically paid for.

I think there's another -- a number of other assets, particularly some of the brownfield former operating gold mines where we have royalties in Canada and in Australia, where I think we're looking to get updates over the summer on progress on those that I think could be quite encouraging, and we'll see how those go.

All right. Well, we're just coming up to the half hour mark, and I think that is the last question we've received. So Dave, I might hand it over to you to round off.

Thanks, everyone for joining.

We might have lost your audio, Dave.

Thanks, Fred. Thanks, everyone, for joining. Again, a record quarter for revenue, EBITDA and profitability for the company, maiden revenue at Korali-Sud with our newest producing royalty, and looking forward to that trend and continuing with record gold prices and growth in some of our material assets.

So thank you, everyone, and I look forward to speaking soon.