Triple Flag Precious Metals Corp (TFPM) 2023 Q4 法說會逐字稿

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. (Operator Instructions)

Thank you and I will now turn the conference over to Shaun Usmar, Chief Executive Officer. Mr. Usmar, you may begin.

We thank you, and good morning, everyone, and thank you for joining us to discuss Triple Flag fourth quarter and full year 2023 results. Today, I'm joined by our CFO, Sheldon Vanderkooy; and our Senior Vice President of Corporate Development, James Dendle.

Turning to slide 4. Our business continued its strong performance during the fourth quarter with sales of roughly 26,000 gold equivalent ounces, resulting in USD38 million of operating cash flow during the quarter. On a full year basis, our portfolio generated sales of just over 105,000 gold equivalent ounces, delivering within our guidance range and creating a new record for Triple Flag.

This strong performance resulted in USD154 million in operating cash flow and USD159 million in adjusted EBITDA for 2023, both new records for the company. In December, Evolution Mining acquired an 80% interest in the Northparkes copper-gold mine in Australia, which Triple Flag retains a 54% gold stream and 80% silver stream.

Evolution has a long history of operating in Australia and is poised to continue developing and operating Northparkes in the exceptional manner that seamark had previously. Northparkes is a world-class asset, having a multi-decade mine life and great exploration potential, and we expect the high-grade E31 deposit to drive a significant increase in 2024 estimated stream deliveries for the asset.

Additionally, several of our over 200 development and exploration stage assets continue to advance, highlighted by exploration success at Hope Bay and updated economic studies at Kone and Eskay Creek. Finally, looking forward to 2024, we're establishing a guidance range of between 105,000 and 115,000 gold equivalent ounces while reaffirming our 5-year outlook averaging over 140,000 gold equivalent ounces.

This builds on top of that track record of sector-leading growth in gold equivalent ounces over the past seven years, we've delivered a cumulative annual growth rate of more than 20% since 2017 and continuing with short and medium-term growth well in excess of our intermediate peers for comparable capital deployment, which we have reaffirmed an annual average of 140,000 GEOs.

I'll now turn it over to Sheldon to discuss our financials for Q4 and the 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 for the 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 Maverick 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 with a solid quarter and a solid year.

Our dividend has been maintained at $0.21 US on an annualized basis, which resulted in Triple Flag paying 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 but I 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.

I'll turn now to slide 6, 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 due to the acquisition of Maverick's metals as well as other royalties acquired during the year, such as Stawell and Dargues consistent margins result in efficient translation of revenue into 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 the volume impact.

Moving to slide 7, we have highlighted here three very important aspects of our portfolio, namely asset diversification, precious metals focus and a portfolio, which is predominantly centered in the Americas and Australia. Our revenue is well diversified across our portfolio. Cerro Lindo and Northparkes are our biggest contributors 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 over time, mine life will continue to be extended as it has in the past.

Moving on the investment thesis for Triple Flag 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 Stawell.

I'd like to now turn to slide 8. Slide 8 sets out our production growth. Since we were founded in 2016 and 2017, we produced 33,000 gold equivalent ounces by 2023, that had increased to 105,000 ounces, a 3 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 an increased cash flow for shareholders.

Turning now to slide 9, I'd like to provide some 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, $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 Australian royalties will be approximately 25%, consistent with the 24% rate that was realized in 2023.

Over to you, Shaun.

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. Both [boxes] position 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 as Ernest Henry mine, having a skill set and experience that is well suited for a large-scale porphyry operations such as Northparkes.

And as you can see on the next slide, mining of E31 open pits at Northparkes is well underway, and we expect these high gold grade pits to contribute materially to our gold equivalent ounce profile starting this year.

From slide 12, you can see that evolution has had great success with developing and optimizing prior acquisitions like the Cowal mine, which is proximate 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 [severe] approach to investing and adding mine life and capacity to create shareholder value in a mine regionally, proximate to Northparkes. Northparkes were interest in this mine with our new partner, and we're excited to help investors appreciate the world-class quality of our gold and silver stream on this cornerstone asset as evolution shows the market what value they can unlock in the years ahead.

I'll hand over to James now to discuss Hope Bay.

Thanks, Shaun. You touched on one of our exploration assets that has generated significant news flow for last year who pays 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 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.

On page 14, you can see the size of the land package at Hope Bay and the multiple deposits and exploration targets that Agnico Eagle has identified. A particular interest of the target area in the vicinity of Patch seven in the center of the long section, which has delivered strong results, including 16.3 grams per tonne gold have been 28.6 meters at a depth of 385 meters at 12.7 grams per tonne gold over 4.6 meters at a depth of 677 meters.

As one of the exploration and development stage assets that we were excited about when acquiring Maverick metals, we're happy to see our thesis players and look forward to seeing Agnico Eagle continue to develop this project. Over to you Shaun.

Thank you. First, the snapshot demonstrates Triple Flag outlook is overwhelmingly positive with our ample firepower of roughly USD660 million in available liquidity, a broad base of 235 assets, our rate consecutive sales record projected for the year ahead with guidance of 105,000 to 115,000 gold equivalent ounces and a 5-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.

(Operator Instructions)

Cosmos Chiu, CIBC.

Thank you, Shaun, Sheldon and James, and congrats on a very strong 2023. And 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, you know, still early days, but have there been any positive changes at Northparkes that you can share with us?

Because my firstly, I think it's a point we've made. Firstly, thank you for the prices, then I've got a great team and we're really very proud of them and what this team has achieved. But to your point, on Northparkes. I just want to take a moment because you've traveled this journey with us.

I know that, you know, we've had perhaps some of the best access and disclosure and Northparkes, but really in [China male] with great partners, but they really didn't have the same sort of reporting and disclosures that I think we'll see and the evolution.

So I guess in the short term, it's only a month since evolution has acquired the business they've only just put out your compliant reserve statements. We expect in the coming months, they're going to be highly motivated to unveil the studies and their vision for the.

So it's premature for us to certainly front run them. But the business is it has multiple ore bodies is well set up in E31 and E31 North is time beautifully for this year and next year to deliver very, very material gold ounce growth for our portfolio. And we're actually having dinner with the team on Sunday night.

And so we'll get further updates and we're going to keep the market informed. And just conceptually, you know, one of the great royalties in this sector is [Malartic]. That's no secret you think of this asset with a longer life for similar for our company as it is to, you know, to Cisco, but really with a growing ounce profile than actually a longer life. And that's before evolution have engaged.

And it's not to say one is bad ones because these are both great assets whose job is really to go work on the coattails of evolution and what they see, hopefully, similar to what they've done at Cowal and to really showcase this asset in the very same way that people come to associates at Malartic with Cisco, it truly is world-class. And I think that's what we would like investors to appreciate.

I think with Evolution, their track record and also the disclosure obligations that will unveil itself in the weeks and months ahead. I'll see if James or should or shouldn't have any other comments that wish to add?

Yeah, I just reinforce Shaun's point C market, tremendous operator, and it really ran Northparkes very, very well. And many of the operating team are consistent from routine today seem update. And now on to evolution. We've seen a few changes here and there, but really it has some similarity in the operators.

If you look at evolutions in our comments publicly that focused on the plan as expected, they point to the size of the mineral inventory. And as a reminder, we're talking about 0.5 billion tonne resource that's currently being chipped away at 7.6 million tonnes per year.

So scope to maybe grow that, that throughput, given the size of mineral endowment, they've also stated a focus on immediate drilling to target near mine mineralization at surface and no systemic proportions would be 48.

So we think we'd be looking at exactly the right way. We've always been convinced that since the expiration of tax rate Limited and really was focused on open pittable material, and we think there's tremendous possibility at that site. And I think that reflects quite well with regards to how Evolution's looking at the asset, but we will see how they go with disclosing their plans over the course of the year.

Great.

Take those and I'll try and give you a flavor of what's the space there should be more to come.

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

Sure. James, do you want to?

Yeah, sure. This is good refresher. If you think about Northparkes, historically, it was a series of relatively small open pits targeting copper-gold mineralization more or less of surface. That's in the mid 90s. Over time. Those pits have been developed. And of course, over time as north than Rio Tinto discovered the deeper rooted in a porphyry system beneath the pits and the mines transition progressively from Stawell open pit to very sophisticated block caves and their minds, the serious blockades predominantly and a number of supplementary open pits.

So that's been the history of the mine. There are numerous open pit targets across the property. So we'd expect some contribution of open pits and continue into the future. But as you know, cause the deal are the real sustained growth. It's from the development of E22. And when you look at E22 that we're talking about, a grade is quite in excess from Gulf with our point of view versus the current run of mine grades at 0.37 grams a tonnes.

So that provides for a longer period of increased gold output. You're compared study E31 are by design relatively small and relatively short-lived said, I'll provide our production this year and into the next part of some 2025. But really, the sustained gold output from E22 which is an important development that I know evolutions also focused.

Not just the two key agendas comment. I think part of the thesis we had, which you sort of alluded to when we did the transaction because we made sure that we had full exposure to the over 1,000 square kilometer land package. And if you recall, the surface manifestation of those reserves are only on 26 square kilometers of 0.5 billion tonnes or so.

It was really the opportunity to find more sort of undiscovered material at depth and even since we've owned this, which has not been a long time, they've been very successful with limited drilling to date in uncovering it. So I'm very excited to see what the evolution can do.

And when you have acquired because I know, I'm sure you have lots of time and reporting season, but go back and look, our CFO, Eric Wen, acquired Cowal as a case study, it's just down the road. It's a very impressive track record of adding substantial value and unlocking values about which I think they're well positioned to do with this mineral endowment.

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

That's great. Thanks, Cosmos.

(Operator Instructions)

Tanya Jakusconek, Scotiabank.

Morning, everyone. And I think that may Tanya not Annie. It would be Annie today. Question for Sheldon first and then over to you, Shaun, on this the transaction environment, Sheldon, I was a bit surprised about the G&A level this year, and I thought we were going to start to see some of the synergies from the Mavericks transaction on some of the G&A. Would you be able to just talk to us a little bit about how you see your G&A going out was just a bit surprised we see that synergies?

Yeah, hi, Tanya. Thanks. And when you some of the G&A is unwilling to 2023 or the guidance going forward.

Yeah, the guidance going forward, I didn't really expect it to grow sales in 2023. I thought we would start seeing it in '24 and beyond?

Yeah. So first on, we actually have completely deliver the $7 million in synergies and you can kind of get there just by looking at the executive team spend at Maverick's, the board costs coming down, audit insurance office space like so that $7 million has been fully realized on. There's a couple of impacts you're going to see as we go forward.

C member, historically, we were a private company. We went to the public on the TSX, and we also started to experience the New York listing costs. So there's additional costs in that regards. And that has a D&O costs as well as just other compliance costs. And we also became subject to stocks this year. So on, you'll see a our audit report looks a little different. We're actually fully compliant with Stocks in 2023. That's a it's an accomplishment for the team but it also involves additional additional costs and expenses.

The other thing is the sum of the noncash equity compensation from accounting point of view, I guess, gets treated. It gets moved then over or over a number of years. And so you end up with a catch-up effect there. But I think we're really coming off two, really what our run rate is on a G&A front. And even if we grow the portfolio, we wouldn't expect the G&A to have a grow accordingly. I will get that gearing effect and just be able to leverage the platform.

Okay. So we should be thinking at 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, what are you seeing out there? And five wise this morning, we've had Newmont put eight assets on the block. And so just wanted to talk about, could you see yourself participate obviously in those asset sales some are in Ghana, some are in Australia, some are in the US, Canada, and just your thoughts on this environment and your opportunities?

Yeah, Tanya. It's kind of interesting if you zoom back. I guess the first answer to your direct question is yes, we have the firepower and indeed the appetite. So if there is a sensible partnership. We'd obviously look to do that. The deal environment, when I step back and look at some of the issues I'm reporting to this period, I'm not saying it's necessarily 2014, which was a very interesting period for the sector to deploy meaningful amounts of capital.

But it's starting to feel a little like that. I think we're seeing a number of sectors coming under pressure from a liquidity point of view, some very big issues. You have seen substantial declines in pricing. I'm not talking pressure, of course, but polymetallics and others.

And it does feel to me with the equity capital markets being the most supportive for the sector and valuations coming under pressure that I think the opportunity set on the it is actually growing. It's growing in a way that absent some magical rebounds in the traditional markets, I think it's setting up well for the sector as a whole.

We've had multiple such as it's already this year. We're seeing advanced, in some cases, bilateral opportunities, which we may or may not convert on in the sort of tens of millions to sort of hundreds of millions of dollars. And so that's, I'd say, what's on the menu directly. But even in the last 24 hours, them had direct inbounds on situations that I think are being made possible by the environment I just described.

So the only caveat you would have heard me say, even a year ago where we were bilateral on some very large transactions, is that I think there is with the opportunity comes responsibility. I think it's a great environment for us to be receiving interesting deal flow opportunity. But we also are very cognizant of just the overall liquidity risk in this rate environment.

And we're spending a disproportionate amount of time on what happens when things inevitably don't go to script. So that analysis beyond just the simple IRRs, this table stakes that you would normally expect from us. And I think we've ramped that up. And if that answers it better. We're seeing a lot right now.

And what would the size range be and what would be sort of the upper end of what you would be comfortable to do on what you do with your balance sheet?

I mean, there are there are some, I'd say, points of hard to sort of predict probabilities, but some that are in excess of our financing capability will perhaps be looking at partnerships. But we are seeing several, as I say, in the good return sort of multiple hundreds, tens of millions to sort of $100 million to $300 million type aspect bracket, which for us is pretty easily financeable.

Yeah, so something of a $500 million, we can see it here that would be more.

Yeah.

Go ahead.

I mean, as you'd appreciate, it's on your light. I'm the guys on this call have a lot of shares in this company. And I think the very idea of like incurring dilution for the heck of it isn't a great idea. You'd have to have something super interesting of scale. And if there was sort of a almost a generational opportunity. You'd obviously think long and hard about that.

But I think in our history, the histogram of opportunities, the largest actual just pure precious and streaming opportunity was not passed. And we said we could do Northparkes today again with our capability with the additional cash generation that comes in. So we could we see things bigger? Yeah, I'm sure we could. And we just haven't seen one in the last eight years, one get bought to book.

Okay. Thank you, sir.

Yeah, thank you.

As a reminder, it is star one, if you would questions. We have no further questions at this time. So I will now turn the call back to Mr. Shaun Usmar for closing remarks.

And we Thank you. I think the questions, we were quality over quantity, which is wonderful. And I think there's a it's probably a reflection of I think what should be straightforward and a good set of results. And 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 just provided and you consider in the context of the sector, I think it should show quite well. And, I'm truly appreciative of the platform that we have. It's simple. We've got the growth that we've delivered, I think should be planned for everyone to see have an eight years now.

And then we've got a lot of firepower like $50 million of debt basically on the balance sheet at this stage and a cash run rate in our drilling and about $160 million. We're extremely well positioned and I'm excited for what lies ahead. So thank you very much and wish you well for the rest of the day. And that's it. Thanks, Abby.

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