Triple Flag Precious Metals Corp (TFPM) 2021 Q4 法說會逐字稿

Good day and thank you for standing by. Welcome to the Triple Flag Precious Metals 2021 year-end results. (Operator Instructions). Please be advised that today's conference call is being recorded. (Operator Instructions).

I would now like to hand the conference over to your speaker today, Shaun Usmar, CEO. Please go ahead, sir.

Good morning, everyone. And thank you for joining us to discuss Triple Flag's fourth-quarter and year-end results. I'm pleased to be able to share the results of our first year as a public company. 2021 was our fifth consecutive sales record since our founding, recording 83,600 gold equivalent ounces. That's a 33% increase in our prior record in 2020, which equates to a sector-leading cumulative annual growth rate of 26% since our first metal sales in 2017.

Our 2021 sales translates into free cash flow of USD120 million. It's a 42% increase on our prior record in 2020. We commenced 2022 with no debt, over USD600 million in financial capacity for new deals, an active deal pipeline, a long-life high-margin portfolio, a dividend providing a sector-leading yield, and greater strategic possibilities as a public company. You've seen what we've achieved in our first five years as a startup. And I am truly excited about what lies ahead over the next five years with the platform we've built and the possibilities it creates for our partners and investors alike.

Turning to slide 5, the portfolio performed well overall during 2021 against the backdrop of ongoing COVID-19 challenges and supply chain disruptions. The increase in gold equivalent ounces over 2020 was driven by the continued ramp-up of newly constructed mines, a full year of contribution from Northparkes, a significant year-over-year increase in Cerro Lindo deliveries, which largely offset COVID-19-related production deferrals experienced by ATO due to associated supply chain disruptions.

Cerro Lindo continues to be a significant and reliable producer for Triple Flag and continues to demonstrate their track record of reserve replacement and periodic mine life extension through ongoing exploration success and mine planning evolution. The latest three-year guidance for Cerro Lindo provided by Nexa last week is net positive to Triple Flag due to higher silver grade projections despite lower base metal grades.

There are three key metals at Cerro Lindo, namely, zinc, copper, and lead. Silver is principally correlated with copper and lead. So there are times when reductions in zinc production are beneficial to the silver production, as the mine molds a greater proportion of copper and lead.

Fosterville significantly outperformed in Q4 of 2021 and for the entire year. The mine produced 509,601 ounces compared to the original guidance of 400,000 to 425,000 ounces with low-grades of 23.7 grams per tonne for the year and throughput up around 14% from 2020. During 2021, we also saw very high grades reported from the drilling down-plunge of the Swan Zone and of course, the announced merger with Agnico Eagle.

The announcement of ATO's Phase II expansion in Q4 was also a positive highlight during the year. The Phase II expansion provides significant mine life extension as that was already advancing with construction activities on a new crusher. We declared a quarterly dividend of USD0.0475 per share, and our annualized dividend yield is sector leading, allowing us to directly share the benefits of Triple Flag's ample growing cash flow with our shareholders.

We intend to continue growing this dividend over time without compromising our discipline growth strategy. We are extremely proud of our sustainability initiatives. We [have been a] carbon neutral since inception and continue to invest in climate performance, host and local communities with a total of nearly USD1 million contributed to sustainability initiatives in 2021.

Looking ahead to 2022, we have many high-quality catalysts in the portfolio driving organic growth. Northparkes E26 Lift 1 North Block Cave is expected to reach production in Q1. That's some five months ahead of schedule. After a record year of silver production in 2021 at Cerro Lindo, Nexa is guiding for a further production increase in 2022. Buritica is expanding throughput to 4,000 tonnes per day, and RBPlat is nearing nameplate at the Styldrift mine after achieving record 4E production results in Q3 last year.

We completed two deals in 2021, adding 37 assets to the portfolio and the majority of these assets were gold royalties in the Americas as well as a copper royalty in Chile. On the dealmaking front, for a team that has averaged just over three deals a year since inception, deploying over several hundred million dollars in new streams and royalties on average annually, this was a relatively quiet year in terms of executed deals.

Our focus is on disciplined deal execution and value creation, exercising patience while pursuing a sensible and accretive deals. The feedback from our shareholders has been unanimously supportive of this discerning approach. Look, we remain opportunistic, laser-focused on growing value per share, and have a perpetually busy pipeline with ample financing capability for any potential transaction.

Turning to slide 6, we are a pure play gold-focused, streaming and royalty company without significant equity exposure like some of our peers. Our investors enjoy exposure to a high-quality portfolio of 79 streams and royalties with sector-leading growth from 13 operating mines and key metrics that compare favorably with the best in the sector from a margin, diversification, portfolio duration, asset cost position, and geographic location perspective.

Turning to slide 7, Triple Flag's current valuation continues to provide significant upside for a rerating to multiples that would be more in line with our senior peers, particularly in the context of the quality and longevity of our portfolio that aligns favorably with the best in the sector. We've already demonstrated repeatedly over the past five years that we have the scale and capability to compete in an intelligent manner with the best in the sector so the largest and highest-quality precious metals opportunities.

We believe that rerating will be driven by the broader recognition of investors of our portfolio quality and management team capabilities along with the continued performance of our business, consistent execution of our strategy, and prudent return of capital to our investors. Our commitment to our investors is to continue to remain disciplined in the execution of our business strategy.

I'll now ask Sheldon to comment on our Q4 and 2021 results and to provide some further context.

Thanks, Shaun. We had another strong quarter, recording over 20,600 GEOs consistent with Q3. Comparing to the same quarter in the previous year, this represented a decrease of 1,800 GEOs. This is due to three factors.

First, Q4 2020 included the Buritica gold stream which was repurchased at the end of the year. Second, ATO's COVID-related production delays resulted in a year-over-year decline in the fourth quarter. And finally, timing of sales from inventory at Northparkes resulted in a lower contribution in Q4 2021 as compared to Q4 2020. On the positive side, we saw a higher contribution from Cerro Lindo and Renard in Q4 2021 as compared to Q4 of 2020.

Looking at 2020 as a whole, we realized a record of 83,600 GEOs, a new annual record and a 33% increase over the prior year. This production resulted in revenues of over $150 million for the year, also a 33% increase as the average gold prices were broadly consistent with 2020.

We present adjusted earnings to adjust for the impact of items such as one-time dispositions and non-cash mark-to-market adjustments. Our adjusted net earnings in 2021 was over $57 million, a 135% increase over 2020. On a per share basis, we recorded adjusted net earnings of $0.39 per share, nearly double the $0.21 per share recorded in 2020, despite the additional shares issued on the IPO.

Turning to cash flow, in 2021, we achieved record cash flows of $120 million, a 43% increase over 2020. This underscores the robustness of the streaming and royalty model as our high margins allow for a very effective translation of higher production and revenue to bottom-line cash flow. For the quarter, we realized cash flow of $29 million consistent with the prior quarter and slightly less than cash flows realized in Q4 2020 due to the production and timing impacts previously discussed.

I'd also like to touch on the balance sheet. Our balance sheet is strong. We close the year with over $40 million in cash on hand. We are debt-free, and we have access to $600 million on a revolving credit facility to fund further accretive growth.

I'll now turn to slide 9. Slide 9 presents our track record of growth in graphical form. The business just continues to grow and develop. The growth in cash flow is quite remarkable, growing from $28 million in 2018 to $120 million in 2021. A strength of the streaming model is that operating cash flow gets translated very effectively into free cash flow. As a streaming company, we are not exposed to the sustaining capital expenditures that mining companies are exposed to. This leaves more cash available to shareholders.

The margins are robust and inherent in the model. After a long period of subdued inflation, the larger economy is now experiencing inflationary pressures. Our model is ideal in this environment, allowing us to benefit from topline revenue increases for protecting us from margin compression due to input cost inflation.

Turning now to slide 10. Slide 10 illustrates that the high margins are resilient despite gold price fluctuations. Crucially, our margins are well insulated from rising inflation, as we are not directly exposed to mine-level operating capital cost inflation. In prior positive-price cycles, producers were unable to fully enjoy the benefit of higher gold prices, as underlying cost inflation could result in margin compression. Our high-margin model is well suited for inflationary environments.

Slide 11 provides a breakdown of our 2021 revenues through different lenses. First, we are precious metal-focused. In 2021, we had an almost equal balance between revenue derived from gold and from silver with only 5% of our revenues derived from other commodities, primarily diamonds and copper. Importantly, none of our revenues were derived from oil, gas, or coal.

On a life-of-portfolio basis, we expect 60% of our revenues from gold, 30% from silver, and 10% from other metals, primarily copper. Approximately 20% of our revenues were derived from royalties, such as Fosterville, Young-Davidson, Dargues, and others. And 80% of our revenues were derived from streams.

Finally, we believe that our geographical breakdown is something that is quite unique and appealing about our portfolio. We have a very high weighting in Australia due to Northparkes, Fosterville, Dargues, Henty, and Stawell. The combined weighting of Canada, the US, and Australia of 44% represents nearly half of our revenues. And these revenues are expected to increase in the future due to ramping US projects. The Latin American weighting is primarily composed of Peru and Colombia, which are well-established mining jurisdictions.

I'll now turn back to Shaun to discuss the 5- and 10-year outlook.

Thanks, Sheldon. Our portfolio has a great track record of growth with further compelling organic growth embedded in it to reach our longer-term 5- and 10-year outlooks for average annual GEOs of 105,000 ounces. And that's before factoring in any future growth from our ongoing dealmaking activities.

Our current weighted-average portfolio life is in excess 20 years, providing our investors exposure to multiple price cycles before taking into account ongoing reserve replacement and mine life extension within the existing portfolio, as well as further growth and life extension from potential future deals. We'll be providing our 2022 guidance in March as we receive annual budgets from our partners and look forward to continued growth in 2022.

Turning to slide 13, we look forward to continuing to provide the market with the richer and deeper understanding of the quality of our portfolio and many ongoing catalysts. As part of this campaign, we hosted virtual mine tours for the benefit of investors on Northparkes and RBPlat last December. They are available on our website, and we look forward to educating the markets on the quality of our other mining partners and their assets in the coming months.

Slide 13 provides an overview of the many catalysts across our portfolio announced recently, demonstrating the diversification, underlying quality, embedded growth, and long-term optionality in the portfolio. Northparkes is expected to commence production from the E26 Lift 1 North Block Cave in the first quarter of this year. That's five months ahead of schedule. In 2023, the addition of feed from E31 open pit will allow Northparkes to fully utilize the 7.6 million tonnes per annum, with the further benefit that E31 gold rates are relatively high.

Cerro Lindo is guiding for increased contained silver production of 3.9 million to 4.1 million ounces in 2022, which is up from 3.8 million ounces in 2021. Zijin has achieved commercial production at Buritica and is already expanding the processing plant from 3,000 to 4,000 tonnes a day. The expansion is expected to come online in 2022.

Fosterville continues to outperform. Drill results through 2021 demonstrate down-plunge extension of the Swan Zone, Cygnet, and Robbin's Hill with very high-grade gold in the down-plunge extension of Swan Zone. The exploration spend at Fosterville in 2021 was approximately USD90 million.

Renard achieved diamond price in the latest sale of $171 a carat representing the highest price realized to date at Renard. Nevada Copper continues to build on the operational improvement achieved over the past two quarters, providing further acceleration to the development and production ramp-up. In December of last year, record underground rates were achieved, and surface vent fan installation is scheduled for this quarter.

Mining of the Sugar Cube, the first high-grade area in the East North zone of the underground mine, continues to be planned for this quarter. Achieving and exceeding 3,000-tonne-a-day threshold during the first half of the year towards the nameplate production of 5,000 tonnes a day later in the year, will be an important milestone for the new mine as it continues to ramp up the underground.

The ATO Phase II expansion announced in the last quarter of last year was a significant milestone and represents material upside for our stream. At ATO, COVID disrupted 2021 production due to supply chain issues impacting the China-Mongolia border. Now the border and vessel congestion unfortunately led to shortages of critical reagents, but Steppe has been mining, crushing, and stacking ore. So the supply chain issues are a matter of production delays that are expected to be made up in future periods -- again, essentially, a timing impact.

Steppe currently has around 45,000 ounces contained in mined and crushed ore on the pads awaiting leaching. We expect leaching to resume at ATO in the spring, but exact timing in the face of ongoing supply chain disruption remains uncertain. We will keep the market informed as they progress. And as always, we are excited for positive news from the earlier-stage projects in the portfolio, such as Talon's Tamarack project, which we'll touch on later; Eastern Borosi; Queensway; and three royalties we acquired in December, which are proximal to Salares Norte.

Turning to slide 14, we have a strong balance sheet as Sheldon mentioned, and well-established cooperating assets and assets in the ramp-up phase providing near-term growth. Both parts of the portfolio are contributing to our results, and I'm pleased to share some notable highlights from the current cornerstone producing assets in 2021.

Northparkes was a strong performer for Triple Flag, contributing 14,900 ounces in 2021. Cerro Lindo continued its very strong performance in 2021 with 30,700 gold equivalent ounces delivered in the year. RBPlat is performing well, contributing 8,100 GEOs. And Buritica reached commercial construction and is now expanding throughput from its 3,000 to 4,000 tonnes a day. Zijin has done a remarkable job. In 2019, we invested $100 million and through to the end of 2021 have realized $90 million already. Buritica delivered 4,400 gold equivalent ounces in 2021. It has been a high-return investment and the upside for the silver stream on the large, underexplored land package is really compelling.

We're pleased to see Fosterville have yet another strong year with 510,000 ounces of production, significantly exceeding guidance. And Fosterville has substantial exploration upside at multiple large gold systems and will continue to be a cornerstone asset following the Agnico-Kirkland merger. Fosterville contributed 10,300 ounces in 2021.

And Young-Davidson also had a great year as they achieved record mining rates in the first half of last year and commenced the first significant exploration program in 2011.

I'll hand over to James to discuss the near-term growth assets and Talon. And I'll then cover up the sustainability components.

Thanks, Shaun. Slide 15 sets out selected assets that will provide organic growth during the coming years. Shaun mentioned the ATO feasibility study announced in October, which represents 10.5-year mine life extension. So it materially increases the life of our stream by more than a decade and is a significant catalyst for both us and the stakeholders of the ATO project.

[Dargues] achieved nameplate capacity [through] fourth quarter 2021. Production contributions to continue to ramp up during -- in 2022 as [it] really reaches that guidance of 45,000 to 50,000 ounces during the year. Gunnison and Pumpkin Hollow will continue to progress their ramp-ups, each contributing to cash flow at present and expected to gradually increase their production contributions going forward.

The E22 block cave at Northparkes will come online in the next several years. Gold rates at E22 are three times higher than the current underground mining areas. So this will be a significant positive driver of GEOs from our cornerstone Northparkes stream from 2025 and beyond. In the meantime, we expect E31, which is an open-pit ore source and relatively high-grade in gold to fill the expanded mill capacity in 2023. Talon is also an exciting story, which I'll talk to next.

Moving to slide 16, firstly, we want to extend our gratitude and congratulations to the entire Talon team on the excellent progress made at the Tamarack project in Minnesota, which we believe will be the next low-cost nickel producer in the United States. Tamarack is a world-class nickel resource with district-scale potential and robust economics. We're proud to have partnered with Talon at an early stage to enable them to acquire their interest in Tamarack project from Rio Tinto.

In 2019, we identified the potentially world-class nature of Tamarack project and provided them with $5 million of funding since we acquired their interest. The high-grades and analogies to nickel deposits such as Norilsk, [Tamarack], and Voisey's Bay as well as the relatively underexplored nature of this large system represented a very compelling value proposition. That coupled with the excellent team led by Sean Werger and Henri van Rooyen, who have been immensely impressive and continuously delivering our investment thesis of this well-located world-class nickel deposit that could supply the growing needs of battery metals in the North American market, which is very much underserved by opportunities of this quality.

The quality of Tamarack was reinforced in January 2022 when Tesla announced an offtake agreement with Talon for the delivery of 75,000 tonnes of nickel concentrate over an estimated six-year period. And in February of this year, Talon exercised their right to partially reduce the royalty rate from 3.5% to 1.85% in exchange for a $4.5 million payment. We also realized CAD$3.3 million that is gained on the warrants exercised and sold in January.

First, we've already generated 1.4 times multiple on our initial investment in a short time frame and continue to hold a 1.85% royalty to share on the upside from the Tamarack project. Talon have also been remarkably successful in proving up the district-scale potential of this orebody through continuous discovery through the [drill bit] since we made the investment.

So it's a small investment for us but a good example of our ability to identify good opportunities, drive returns, whether on typical multi-hundred-million-dollar deals or on longer-term portfolio additions like this one. We will continue to add quality battery metal opportunities to our precious metal portfolio over time.

I'll turn it back to Shaun to discuss sustainability.

Thanks, James. On slide 17 -- look, from inception, ESG has been at the core of who we are and what we do. We published our first annual sustainability report showcasing how we have adopted a first-principles approach to ESG as capital providers to the mining sector, including rigorous selectivity and due diligence on new investments, co-investment with our mining partners to support good community relations and enhance the privilege to operate, as well as reporting our greenhouse gas emissions -- and that's Scope 1, 2, and 3, which we see as distinctive -- along with our ongoing investments in carbon offsets to ensure carbon neutrality since inception.

In addition, we've maintained our zero incident record in physical health & safety and in code of conduct breaches. To date, we've purchased high-quality, independently verified carbon credits to offset over 25,000 tonnes of CO2 equivalent from our Scope 1, 2, and 3 emissions. We supported, regenerated degraded lands in Chile, creating sustainable livelihoods in Peru and renewable wind power in Mongolia.

For many people around the world, 2021 was a very difficult year as the impacts of COVID-19 continued. We invested over USD500,000 in specific initiatives supporting underrepresented near our producing assets and our headquarters in Canada. Our total spend on sustainability initiatives in 2021 was just under USD1 million representing 2% of net earnings and demonstrating our commitment to climate performance and investments in people and communities.

I'm pleased to report, we continue to make significant strides in ensuring sustainability issues. And objectives are embedded in our corporate strategy, which we look forward to further demonstrating in our second sustainability report.

On slide 18, we have a strong institutional shareholder base led by Elliott and a blue-chip set of leading global funds and a growing retail shareholder base. As significant shareholders ourselves, we fully align with our fellow earners. You will recall that we couldn't place an NCIB late last year and started buying back shares, given our undervalued share price. We know we need to grow liquidity, but this was more about sending a signal to investors and supporting our stock in a volatile environment.

The immaterial nature of our volumes is illustrated when you consider that we bought back only $1.7 million of shares in the fourth quarter of last year. I believe in January, it was something like 8,000 shares, just to put it in context.

Turning to slide 19, looking into 2022, I believe the diversification of our assets and the pure streaming and royalty exposure will stand Triple Flag in good stead, particularly as we continue to see signs of cost inflation and margin compression across the metals complex and beyond. Our business is producing strong cash flows, which are positioned to increase as a fully funded embedded growth is delivered across a number of assets.

On the exploration front, we expect to see more exploration and technical study announcements across our portfolio, as many operators have either commenced or plan to commence drilling programs on our royalty lands. And from a corporate perspective, we firmly believe that a dual Canadian and US listing is the natural progression for Triple Flag, an objective we would like to achieve in this year should market conditions prove amenable.

Our deal pipeline is also perhaps the most active we've seen in our nearly six-year history, promising the potential for further growth through deals in the years ahead to build on our successful track record. With no debt, USD41 million in cash and more than USD600 million in liquidity, we are well placed to continue our proven growth track record and enhance the quality of our portfolio.

I'm really excited about this next phase of our company growth as a public company and the many possibilities we see ahead. Thank you all again for attending the call. I appreciate you bearing with us with the glitch in the [matrix].

And I'll now ask the operator to please begin the Q&A session. Operator?

(Operator Instructions). Fahad Tariq, Credit Suisse.

First on ATO, I appreciate the update you provided. Can you give a bit more color on where things stand in terms of the reagent supply and whether the situation in Russian and potential sanctions would impact alternative supply routes into Mongolia? Thanks.

Fahad, look, we've been in constant contact as you'd imagine with the management team. We obviously don't want to get ahead of their disclosures, but we are aware that they are pursuing multiple supply fronts, which we hope to have news on in short order.

I'm not aware of any concerns on the Russian front at this point. Obviously, it's in the news, and its topical. But the team itself, I know, are pursuing multiple supply sources on several fronts. So we hope to have some news on that front fairly soon.

Okay. And in the release, there was a portion where you mentioned strategic possibilities in reference to the company. What did you mean by that?

Yes. If you look back at our history, it's been interesting to us that there have been some transactions with counterparties who recognize the ability for businesses like ours where there is rerate potential. Rather than just take cash, they actually want equity exposure and as a previously private company, really, that was just too hard.

For companies to want to take equity exposure in a private company and then have due diligence a fairly substantial portfolio, that's a lot of brain damage. So having a public currency really does open up possibilities. We've seen over the last few years that we couldn't participate in meaningfully. And at the same time, if there's value opportunities as the market looks at consolidation in the future, those are things, of course, we can potentially participate in. So that's really what I mean.

Appreciate the color. Thank you.

Thank you. Thanks, Fahad.

Greg Barnes, TD Securities.

Shaun, I know guidance is coming out in March, but could you give us some ballpark ideas about production over the next several years, possibly from Northparkes and Buritica once these expansions are complete and ramped up?

Yes. Okay. Greg, the first thought on that -- it's been interesting for us even in the last week or so. You saw the Cerro Lindo news, and you've seen what that meant for this sort of core activities. But you've also seen the silver news, which is obviously a positive. You will see that when you look at our guidance in the last year, we will continue that posture of being conservative, particularly in the sort of uncertain environment that we find ourselves in as we set guidance. And that will be a posture we'll continue to adopt.

But our 5- and 10-year outlook that we provided is very much intact, and that's how we think about that. I think it Northparkes, you've seen the comments about E31 and the good performance that the team has delivered there on E26 Lift 1 North. I see this as a transition year, where the end-of-life cave, which is lower-grade transitions that we'll see that E26 Lift 1 North come up. The capacity gets utilized more from 2023 and beyond and then significant higher-gold grades in that two-year-plus horizon.

And you will recall, I think it was the 2025 horizon -- James, I think it was E26 -- which has three times the gold grades. Yes, that was 22. That is something when you start looking beyond, let's say, the next few years, which is an area that I think will be a significant gold ounce catalyst at Northparkes.

And then it's just the ongoing posture, as you mentioned with the ongoing ramping assets, we will always maintain a conservative posture when we think about guidance setting. I think you saw that play out this year even with the situation at ATO, the risk of portfolio actually really quite well. So stay tuned. I think Franco last year put out theirs in March. Royal Gold also puts out theirs in March. We will be doing the same with the benefit of info from our mining partners.

Okay, fair enough. I guess, James, your comment about adding battery metals to the portfolio over time. Do you include lithium and obviously nickels in there? What else are you looking at and how far would you go?

Yes. I'll comment and ask Shaun to add on, Greg. Nickel is quite a good example, and Tamarack, in particular, is a good example, where we like the fact that that project is quite unique in many respects in terms of its potential, very high grades, geographical location. So under the right circumstances, we obviously took that exposure on board.

Our expertise amongst this team is certainly more skewed towards base metals -- nickel, in particular. So that will be our focus when it comes to battery metals. But, Shaun, I'll ask you to comment on some of the other more eclectic commodities.

Yes. Greg, just adding on to that, you've seen the bulk of our -- like 90% of our portfolio is really gold and silver. And the bulk of the remainder is actually copper. There's a lot of byproduct, precious ore, copper orebodies out there. And we see a lot more opportunity for those coming online in the years ahead. where we can be a sort of patient source of funding.

But I think to James' point, we've looked over the five years -- everything from spodumene to brines to various bits of cobalt at different points in the cycle. We'll always think very carefully about the weighting in the portfolio. And I think distinctively, with the scale we are at in our growth profile, we see ample opportunity to actually have symbiotic addition of pressure streams, where we're not competing for the primary thing that the actual underlying operator covets.

So if you've got a copper asset like Northparkes, they don't really care about the gold and silver and there's a natural arbitrage. So we like those deals. I think 65% of our portfolio is actually byproduct derived. So we will actively look for more of those.

Okay. Great. Thank you.

Thank you.

(Operator Instructions). Cosmos Chiu, CIBC.

Hi, thanks, Shaun and team. Maybe my first question is on your deal pipeline. Sean, as you mentioned last year, it wasn't the most active. But it sounds like the pipeline is really good at this point in time. With about $600 million of liquidity, can you give us a bit more granularity in terms of what that pipeline looks like, size of those deals. For example, the one that you did most recently, Beaufor, not the largest deal you've done. Should we be looking for potentially bigger deals or what -- how should we look at it?

Yes. Cosmos, it's obviously an evergreen and important question. I think the first important feature we've tried to propagate is on the one hand, there's probably more activity that we have seen now than I think at any time previously. It really has been quite significant. We're seeing a lot in this sort of smaller side. We are aware of some that are larger, which we don't feel a good portfolio fits for us, for example.

We're always doing very large, let's say, proactive outreaches which we think could be symbiotic, which we see as longer-term relationship building and things, which if there is a good use of proceeds could culminate in the deal. And so, a good example -- although they aren't like massive -- like RBPlat would be one, where we'd identified there proactively. We saw a natural arbitrage. We started that conversation at the side of a mining conference. And then four or five months later, that germinated into a transaction.

We're seeing a lot more on the mine development front. I think if you see some of the announcements that have culminated from some competitors recently, a lot of those have been actual development stage-single asset businesses often quite unfunded and sometimes, even quite early stage. I think we're seeing a fair bit of that activity. In the immediate future, we see some in the few-hundred-million-dollar size that will be coming to market, which are perhaps non-core in nature within existing portfolios.

The smaller stuff we don't focus on particularly, so like Beaufor, was just an opportunistic addition, where we saw something for a reasonable return in the market recently, where we've seen a little bit more aggressive behavior in the sector.

And I think the main thing is we're just going to continue to be very patient and discerning. Some of the most valuable companies in this sector, when you go back a number of years, made a huge virtue of their long-term horizons and their patience. We own a lot of equity in this company. And we're not about to frivolously invest our shareholder capital on things that we don't think make good returns and are good deals for us and our partners. So, hopefully, that's a bit of context, but there's a hell of a lot of activity on the go at the moment.

Yes, that's great to hear. Maybe digging a bit more detail into this, I think in the press release, you talked about -- for the press release for Beaufor, you talked about minimizing taxes since you have existing tax pools. Maybe, Sheldon, could you update us on the tax pools available and how that factors into your deal pipeline?

Yes. Thanks, Cosmos.

Hi, Sheldon.

With our structure -- and this is actually specific to us; this is just Canadian tax. With royalties -- Canadian royalties, you get to basically deplete the entire pool of costs you expanded on the royalties upfront. And so that generates some good tax shield. And then also, there's all the G&A and public company costs, for the most part, are based out of Canada.

That's why we put that mention in there that we are not cash taxable in Canada right now and won't be for a number of years. The cash taxes that we do pay are out of Australia, and we pay the statutory Australian rate. It works out to about 25% to 30% of tax burden on the Australian royalty revenue. So that's the context there.

Great. And then maybe switching gears a little bit in Northparkes. Very good to see that they're five months ahead of schedule on the E26 Lift 1 North Block. Maybe if you can give us a bit more detail in terms of how they were able to get there so much ahead of schedule. And then on top of that, as we look out, is there any kind of read-through in terms of future expansion and ramp-ups at the asset?

Yes. The timing --- Cosmos, it's James -- on development side, it's really just through good execution on the Block Cave and decent planning. So that's quite straightforward there. On the expansion project, the mill expansion project, they encountered a few delays in commissioning certain elements of the pricing circuit and that sort of thing, but really quite minor in the grand scheme of things. So that's fairly straightforward.

And then they now have the expanded processing capacity that really drives great performance when E22 comes in. And Shaun already mentioned the gold grades associated with E22; they are much higher. On what we're looking to over the next year or two, before E22 comes in, is opportunities at the mine to bring in open-pit feed from E31, which you might recall has relatively high gold grades as well to fully utilize that 7.6 million tonne capacity.

In terms of future expansions, from our point of view and as far as our understanding goes, 7.6 million tonnes is where the mine is that at the moment. And it's really about fully utilizing that mill capacity as opposed to stepping up above and beyond.

Cosmos, I just want to raise two features that I think are worth noting when you think about Northparkes and your question about drivers of our performance. When you think about two features in Australia, and not just Australia, but one is -- places like WA with COVID and relative difficulty of getting in a lot of the skills that are needed, you've seen challenges with inflation and sourcing a key skill.

In this situation with Northparkes, where you've got a workforce that really lives close by a few hours from Sydney, they've really had quite a stable workforce situation, which is not necessarily the same in many other mining contexts, not just in other parts of Australia, but elsewhere. They don't have a [fly-and-flag] workforce, for example, that can quite easily hop on another plane and go somewhere else. I think that's an important feature just to recognize.

And also, when you've got a team that's really been operating for 28 years and doing this on a fairly regular basis, it's not like they're putting a greenfields operation in place here. There's one cave after another, where they develop the next plan, bring it into production, and then move on. This is a team that knows what they're doing, and they've been doing it for quite some time. So I think that is a large part of the driver of what you're seeing there. And I think it's a risk as you think to the future for many mining situations, particularly development stage right now.

Capital cost inflation, sourcing the right skills, supply chain disruption, those are areas we have been for a while. And we'll continue to put a hell of a lot of scrutiny on because I think they can significantly undermine returns in this environment. It's an area of significant focus I think for us and I'm sure for others in the space.

Yes. Thanks, Shaun. Those are very good points. Those are all the questions I have. Thanks again for the conference call.

Thank you.

Tanya Jakusconek, Scotiabank.

Good morning. I think that's me. Hey, everybody. So I have a couple of questions, if I could. The first one, I just wanted to circle back to just the transaction, the environment that you are seeing. Just wanted to make -- just on the couple-hundred-million-dollar transaction size and precious metals that you're seeing, I think Shaun, you mentioned that it's mainly in development assets. Did I hear correctly?

Look, we're seeing and we have seen quite a lot of development stuff. We've got visibility of some non-core things that are likely on the horizon extremely soon, which will be precious. So I think you continue to see these periodic unforeseen surprises and some that we have worked on for years that ultimately come to market when they come to market.

And then we've got the sort of evergreen things that we were exclusive on one situation that we've been working on for some time. And if we get a plan, we think we're capable of underwriting. We'll obviously do a deal, and we will announce it. But it continues to positively surprise me -- the things that are coming to market that I think maybe even four years ago, we probably wouldn't have seen. Because I think there's a broader acceptance of this on the funding, particularly stream financing actually.

And in the stream financing in the precious metals side, is it mainly from base metal producers or how you -- what percentage would you say are from base metal companies?

I actually see -- I can't give you a percentage. I would say we are seeing quite a lot of byproducts that's [our sort of favorite]. I think, as I said earlier, about 65% of our portfolio is actually byproduct driven, which I think really drives the portfolio duration that we are seeing.

And when I look to the future, I think increasingly, not just for us but for the sector, I really see that there's an outsized opportunity for investment in polymetallics really with precious. Again, a diversified trading at four, five times EBITDA multiples that don't really -- there's no strategic significance to the precious metals for them, if you can provide that low cost of capital non-dilutive natural arbitrage and capture that and share it. It just makes sense.

So I think we see not just ongoing activity in that vein, but I see opportunity for a lot more of that in the 5- to 10-year horizon.

And then anything in the royalty portfolio [front], do you see opportunities there or they -- the just smaller deals?

Yes. It's a good question. Look, we are aware of some stuff that's quite large. There's some things around on net profits interest and other things, which we don't have exposure to, and I'm not sure about. But things like Beaufor are just opportunistic.

We see other guys who spend a lot more time focusing in that area and usually if we pick them up, it's either because we've managed to find a differentiated perspective on the asset or occasionally, it's just part of a larger portfolio that we think works for us. But you've seen the new [entrants] there. You've seen how much activity is in there, including [a hostile] recently. So I don't know how that plays out, but it's not much of a focus for us.

Okay. And then just two other questions. You mentioned some larger-sized precious metals deals that don't fit your portfolio. Am I gathering those larger-sized deals are greater than $500 million?

No. I'd need to remember the context of that. No, I'm quite happy to do deals bigger than $500 million; we have with Northparkes, as you recall. So no, I can't recall the context of that.

For us, it's a question more of the fit, either with views in the operator or the jurisdiction or otherwise. And I think it wasn't precious; it was more non-precious that I was referencing earlier. We're quite thoughtful about concentrations in the portfolio outside of precious. So we are seeing some larger ones that are non-precious oriented that we think just won't fit with the portfolio at this point in time.

Okay. Then just my last question on that is, if that's the case, the battery metal size transactions that you're seeing out there, what size would they be in?

That's a tough one for me to answer directly because there's some very large ones that we are aware of and that -- if we did participate, it might be as part of a broader participation, where we would size our participation for the portfolio.

I think, as James said, it's an area that, given our careers, we've got quite a lot of capability and insight in, but we are not in the habits of building further Triple Flag precious -- sorry -- battery metals. It's really more that symbiotic emphasis on byproducts that we see opportunity in the future.

Okay. And then maybe, if I could just move on to Cerro Lindo. I just wanted to get an understanding -- I'm sorry, there was technical difficulties, so I didn't quite hear. But just on the mine plan that was put out, we do have lower throughput, lower zinc grades. Maybe just on the better zinc production that you're going to be expecting in the next couple years, just maybe a little bit on what's happening there with the orebody.

Yes. I'm going to ask James to provide color on it. But I'd say the broad thing for us, which was really appealing when we looked at Cerro Lindo, is just that really low-cost nature of their ability to not just mine but to continue to add to reserves. And if you remember, Tanya, we are getting close to 80% recovery on our initial investments. And the silver reserve is the same as when we did the investment nearly six years ago. So that's sort of the backdrop.

The reality is we've seen them continue to extend and find new discoveries. And I think what we are seeing with how they're evolving now and low throughput and the focus on grades and other zones there, is actually consistent with how we've viewed this opportunity for many years actually, and it's consistent with that 5- and 10-year outlook. We've actually been positively surprised with the three-year guidance numbers they've actually just put out, for example. But James, I don't know if there's any other color you'd want?

Yes. Thanks, Shaun. I think as you look at Cerro Lindo, they've been mining about 1.6 million tonnes a quarter for a while. Whereas, if you refer back to the technical report that was put out last year, they called for about 7 million tonnes for 2022. We've had this philosophy that -- which I think we've shared before -- that there's probably a more optimal operating scenario where the orebody recovery is maximized, the dilution is reduced, and the throughputs are moderated accordingly, which for us, actually works quite well, which is reflected in what these guidance numbers come out.

So we're pretty insensitive to it. And we actually think that this philosophy is the right one to maximize value from that orebody, both for Nexa and for us. So we see that as being quite constructive. And I think when you look at the history of the orebody, it's a very, very large bulk mining scenario. And basically, as you track through the proportion of primary, secondary, and tertiary stopes versus production rates, as the miners moved more toward secondary and tertiary stoping, that production rates have declined accordingly. So it sort of makes sense for the orebody.

And then towards the southeast of the mine, Nexa for the last few years been discovering some narrower but still 10 meters thick high-grade zones, which typically carry quite high silver grades more so than the main orebody. So those lend themselves to lower-volume mining for two reasons: one, they're narrower, as I mentioned; and two, they're further away from the surface access. But they provide really good-grade feed and have been occasional sources of positive variants to silver stream.

So I think that that's the way this mine has performed and the way it will continue to perform. And then we mentioned in the press release, Nexa has discovered narrow Pucasalla, which is quite a long way to the north. But we view that as a positive development, and anything that furthers the life of the asset is obviously beneficial to the stream. And they continue to be very active exploring the stream area. So that's how we look at it. I hope that answers your question.

Maybe just overall, just to understand, is it that we are getting better silver grades in the next two years because we are in this vein -- very higher-grade vein, narrower vein, silver veins that is causing the increase in grade?

I think it's a bit of a combination. I don't think it's exclusively that. At this stage, we haven't done a detailed reconciliation between the new three-year guidance and gone into the block model and all that stuff. So we'd have to do that to give you a robust answer. But at those still very high production rates, the mine is still heavily reliant on these mass mining bulk areas. So it's not a complete shift; it might be a partial shift.

Okay. Okay, thank you.

Thanks, Tanya.

I'm showing no other questions at this time. Are there any closing remarks?

Look, operator, thank you for rolling with the punches on this. I appreciate everybody else who joined us and the thoughtful questions. And look, thanks for being part of our first set of results as a public company. Really appreciate it. Hope you enjoy the rest of your day.

Again, thank you for participating in today's conference call. You may now disconnect.