Good day, and thank you for standing by. Welcome to the Q3 2021 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone keypad. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Ms. Flora Wood. Please go ahead.
Thank you, Francine. Good morning, everyone, and welcome to our Q3 call. Our press release and quarterly filings were released yesterday after the close and are available on our website. This event is being webcast live, and you'll be able to access a replay of the call along with the presentation slides that have been added to the website at altiusminerals.com. Brian Dalton, CEO, and Ben Lewis, CFO, will both be speakers on this call, and then we will open it up for your questions. The forward-looking statement on slide two applies to everything we say, both in our formal remarks and during the Q&A. With that, I will turn over to Ben to take us through the numbers.
Thank you, Flora, and good morning, everyone. Thank you for joining us. Q3 royalty revenue of CAD 20.8 million or CAD 0.50 per share is higher by 28% from the comparable year ago period and down by 5% from Q2 2021 royalty revenue of CAD 21.9 million or CAD 0.53 per share. Year-to-date revenue of CAD 60.5 million or CAD 1.46 per share is up 33% from the CAD 45.5 million or CAD 1.09 per share recorded for the same period in 2020. Q3 adjusted EBITDA of CAD 16.9 million or CAD 0.41 per share compares to CAD 12.4 million in Q3 2020 and CAD 17.7 million last quarter. The EBITDA margin for the quarter was 81%.
Adjusted operating cash flow of CAD 18.9 million or CAD 0.46 per share compares to CAD 7.3 million in the third quarter last year and CAD 5.8 million in Q2 of this year. On a year-to-date basis, operating cash flow of CAD 33.5 million is comparable to the CAD 33.9 million reported for the prior year nine-month period, which had benefited from lower cash tax installments as a result of payment flexibility granted by tax authorities during COVID-19. Quarterly net earnings of CAD 10 million or CAD 0.24 per share includes CAD 0.04 in mainly non-cash adjustment items that are identified in the waterfall table and slide that you can find on our website, leading to adjusted net earnings of CAD 0.20 per share.
The board of directors has declared a quarterly dividend of CAD 0.07 per share, consistent with the 40% increase that we announced at the end of last quarter. The dividend will be paid to shareholders of record at November 3, with the payment date being December 15, 2021. Now to the balance sheet and capital allocation. The cash position increased to CAD 30 million at the end of Q3 after strong royalty-based cash flow generation and cash generated by net sales in the project generation business. This amount does not include the ARR cash balance of CAD 69.8 million, which we consolidate in our financial statements as a result of our 59% ownership in ARR. The debt balance at quarter end consisted of CAD 50 million outstanding under the term facility and CAD 68.7 million drawn against our CAD 175 million revolving facility.
Scheduled principal repayments of CAD 5 million were made during the quarter. Going forward, this scheduled amount reduces to CAD 2 million per quarter in accordance with the recent credit agreement amendments that were negotiated in order to increase our capital allocation flexibility while also expanding our total available liquidity. We continue to be active during the quarter under our normal course issuer bid as well and have repurchased and canceled 585,300 shares or 1.4% of the shares outstanding during the nine-month period ended September 30. That's my main remarks today, and now I'll turn it over to Brian.
Thank you, Ben. Thank you, Flora. Q3 was another good one overall for Altius that saw a strong rebound in royalty revenue, EBITDA, and cash flow from year ago levels, as well as strong cash generation and sales of select equities from our project generation equities portfolio. We also had a lot of positive news flow related to our internal growth pipeline royalties. During the quarter, there were noteworthy operational improvements at Chapada and strong royalty distributions related to our indirect IOC holdings. These were offset by slightly lower throughput at 777, annual maintenance shutdowns at several of the Saskatchewan potash mines and at Voisey's Bay's Long Harbour processing facility, and an outage at one of the three power generating units at Genesee. Base metal prices continue at favorable levels. Potash market prices are at multi-year highs, with realized prices following, but on the typical lag basis.
Iron ore prices have recently retreated from all-time highs seen earlier in the year, however remain at healthy levels on a historic basis, particularly with regard to our product exposures that attract significant purity-based premiums. Reading through the commentary and updates we have been receiving from our operators suggests that Q4 has the potential to be another very solid quarter. Chapada is expected to benefit from continuing strong mill throughput and copper recoveries. Annual maintenance programs have now been completed at the potash mines, and Nutrien in particular expects to continue to ramp up production levels into pre-built capacity in order to meet unprecedented global demand. also continues to accelerate the ramp-up of production from the K3 area of the Esterhazy Potash Mine to offset lost production related to the early closure of K1 and K2 earlier in the year due to water inflows.
Long Harbour plant maintenance has been completed, and the new Reid Brook nickel mine at Voisey's Bay continues to ramp up and contribute to overall production levels. Genesee expects to be fully operational again before the end of the quarter. Altius Renewable Royalties experienced a tremendous quarter in its business development history. With the underlying GBR joint venture, which ARR holds equally with Apollo, successfully deploying over $100 million in new investments. Its royalty portfolio has now grown to 16 projects with a collective capacity of more than 3.5 GW of wind and solar generation. It has announced that its expected timeline for reaching the milestone of positive cash flow has been moved forward to 2022. We're picking up an increasing number of potential organic growth signals related to several of our operating and pipeline royalties.
Over the coming year, we are looking forward with great anticipation to a host of further operator announcements that could represent meaningful growth catalysts for our business. To highlight a few, Lundin Mining has indicated that it will report upon its major ongoing near mine drilling program at Chapada, as well as parallel mine expansion studies over the course of the year. Champion Iron expects to complete and report in H2 next year on the results of its updated feasibility study for the Kami Iron Ore project, where we hold a 3% title registered gross sales royalty.
It is noted that this study is evaluating the potential for Kami to produce ultra-high pure, high purity product that could serve the non-coal-based direct reduction electric arc furnace steel making subsegment, which it further notes to be gaining market share quickly around the world as emissions penalties become increasingly factored into cost structures. AngloGold Ashanti reported during the quarter that it has discovered two potentially significant gold deposits at the Silicon project in Nevada, over which we hold a title registered 1.5% NSR royalty. It is currently completing initial resource estimates and economic studies that it expects to report on in coming months, as part of what it is describing as a potential Tier 1 production opportunity in Nevada. That's actually worth repeating, a potential Tier 1 gold production opportunity in Nevada.
Lithium Royalty Corp., a private company that we hold 12%, 12.6% co-founding interest in, holds several royalties that catalysts are developing around. It has a royalty related to Neo Lithium's large-scale Tres Quebradas Lithium Brine project in Argentina that has recently delivered a positive definitive feasibility study, achieved pilot level production of commercial grade products, and is the current subject of a friendly takeover bid by Zijin Mining. LRC also holds royalties over Sigma Lithium's Grota do Cirilo project in Brazil and Core Lithium's Finniss project in Australia, both of which are spodumene-based lithium projects that have announced construction starts. Altius owns direct royalties relating to Tres Quebradas and Grota do Cirilo that were acquired under its 10% co-investment rights with LRC.
For those interested in learning more about LRC, I'd certainly suggest visiting the lithiumroyaltycorp.com site, and you can see just how much progress that business has been making. Adventus Mining recently published a positive definitive feasibility study for its copper, gold and zinc-rich El Domo deposit in Ecuador, and expects to report on project financing and permitting activities over the next several months. Here we hold a title registered 2% NSR royalty. Speaking more broadly now, it is clear that inflationary forces are building in both the mining and power generation sectors. While this is pressuring all operators, we believe it to be a strong overall net positive for our business.
Our exposures are generally calculated at or near top line rather than marginal, meaning that we aren't directly impacted by inflating capital and operating costs, but are beneficiaries of any product price increases that the higher cost structures ultimately result in. This is beginning to feel quite reminiscent of what played out in the middle part of the prior market upcycle, and that resulted in supply incentivization prices moving up sharply over the course of a few years. For example, we estimate that the copper incentive price would have been in the $1.20 range in 2007, but by 2012 exceeded $3 a pound, with actual market prices following along nicely. We have some charts in the opening part of our Investor Day presentation from earlier in the year that illustrate what happened back then for anyone interested.
It's available on our website. Finally, several of you have been asking about our potential participation in a series of sales processes that have recently been launched relating to base metal-focused royalty portfolios. Altius is evaluating these opportunities both technically and financially and using our disciplined long-term per share growth focus investing approach. Can't say I'm overly confident that anything will result for us from these processes, but can say that one such source of attractive long-term growth and value that we have been able to identify and continue to regularly purchase, called Altius Minerals. Thank you, and happy now to turn it over to questions.
Thank you. Participants, as a reminder, if you would like to ask a question, you will need to press star then 1 on your telephone keypad. Again, that's star then 1 on your telephone keypad. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Carey MacRury from Canaccord Genuity. Your line is now open. Ms. MacRury, your line is now open. If you are on mute, please unmute.
Yeah. Sorry I was on mute.
Thank you.
Yep, sorry. Good morning, everyone. Maybe on potash, I know you've talked a bit about the lag on pricing, but if I look at sort of normalized volumes and, obviously the potash price has had a huge move in Q3, it sort of implies your Q4 revenue could almost double. Is that sort of in line with your expectation?
Yeah, if the past pattern holds, I mean, really our realized price looks a lot like the prior quarter's market pricing. T he move in Q3 we'd expect that in Q4, maybe stretching into the Q1 next year a little bit. Then I'll just go on to say that what we heard from the operators on their calls was that they'd expect to realize current market pricing, mostly in Q1. Again, same sort of pattern, current pricing. About a one quarter lag, I think if you look at it that way, over time, that's what's been playing out well for us. Yeah, it should be a really barn burner type finish in potash.
Nice. Maybe on iron ore, obviously a lot of volatility going on in the iron ore sector in the last month or couple of months. Just sort of your thoughts on where you see iron ore right now?
It's obviously come back, but from what? That's the key point here. I mean, that price mid-year here never felt very comfortable, and I wouldn't think it's healthy at that level. Where we're at right now is a pretty healthy overall level. There's obviously this huge short position in iron ore right now, so I don't know how fundamental the price we're at today is. You know, there's sentiment and market noise out there. One thing I would point out is that if you look at it on a year-over-year basis, prices are down if you're dealing with lower quality product. They're maybe down by a third or so year-over-year.
If you look at the higher range, so say the 65% or 66% benchmarks as well as the pellet premiums, we're actually up. I think, you know, November to November 1, it was something like, you know, up $14 for the 66% and up $18 on the pellet premium. So that bifurcation is part of the story. It continues. Y ou read the headline and the benchmark is what gets quoted, but it's not everything. Some of the pressures that are on iron ore right now come from prices that are being imposed on the steelmaking industry to cut emissions and, you know, a lot of that's in China. And I think that's why you're seeing less negative impact or relative outperformance in the higher end of the spectrum.
It's just the market rationalizing the cost of emissions as part of the overall structure of iron ore making. Look, long and short of it is that that was fun through the summer. We'd be looking at you know $300 pellet prices, but it was never realistic. This is a good level. It's a healthy level. We'd expect still very strong yield against at least our purchase price. We can buy up shares at anything close to these levels. I'd also go as far as to say that I think these levels and even less than this would still be sufficient to incentivize growth, particularly for higher end higher quality product production. All good.
Okay, great. Then maybe one last one for me, and then I'll pass it on. Just looks like Lithium Royalty Corp, a bunch of their projects are moving forward. Just wondering your thoughts there on, you know, how Altius ultimately will benefit from that.
I mean, I think it's probably a bit more visible to our shareholders just how well, you know, Altius Renewable Royalties has done. You know, it's out there and it's a public company and you can see it. If there's another royalty company out there, new, that has done at least as well as if not better over the past few years in launching from a zero start, it would have to be LRC, in my opinion. They've really picked assets well. They took full advantage of the big sell-off in lithium beginning in around 2018 and were able to put a lot of really good capital to work on good projects. Now they're seeing the fruits.
Lithium's obviously, as a commodity, is acting really nicely here, pretty much exactly as a function of the big burst in global EV sales that's underway. Investments are getting made in the projects that they bought royalties on. These are getting built. As far as, you know, from a CEO's perspective, we're really happy with the investment. It's not really for us to make the call. We're just a shareholder in terms of what the ultimate path for LRC is, whether it, maybe becomes a public company or, you know, many other type of corporate transactions are in store for it. I don't know. Overall, as far as...
You know, we made our decision with regards to lithium, that it was going to be a better investment for us if we were to join with people that could focus on it on a very dedicated basis rather than trying to do it completely on our own. We chose the team we did, and I'll give a big shout-out to Ernie Ortiz, CEO there, and really couldn't be happier with it. All I'll say about it for now is that we're extremely happy holders, and probably willing investors in further growth there.
Great. That's it for me. Thanks, Brian.
Thank you, sir.
Your next question comes from the line of Craig Hutchison from TD Securities. Your line is now open.
Hi, guys. Good morning.
Hey, Craig.
Hey.
Just a follow-up question on potash. Just in terms of volumes, obviously there are some capacity constraints here in the third quarter due to some maintenance issues. Any sense on kind of where the volumes are this quarter and maybe what we can kind of expect for next year? Kind of will we be back to kind of similar levels to maybe Q1 where they were quite strong or any sense there would be helpful.
Yeah. I mean, there's obviously a fair bit of seasonality in that business. I t gets applied in the spring and again in the fall. Volumes can be or at least sales, I should say, can, really fluctuate around over the course of a year. Then it's been typical for many years for annual maintenance programs to be carried out in late summer. There was probably a bit more of that than usual. It might be a function of just how hard the mines have been running for the past little while. Like if I look to Nutrien as a proxy here, they're guiding to somewhere around, I think, 1 million tons of extra overall production this year. That does imply a pretty strong Q4.
They further commented that they've got the option established and ready to increase that plan even further, 1 million tons next year. C ontinuation of the pattern we've been seeing for a long time. When we bought those royalties, one of the key appeals was that there was a lot of extra unutilized capacity that was bought and paid for that could just be ramped up. We've seen that since we've bought them, just steady volume growth across the portfolio, which is certainly accelerating right now to the point that you know I can't tell you how many times I you know I was shot down on that argument about how valuable that optionality was.
I heard back was, "Oh, well, potash is forever oversupplied." T hat stuff, that optionality is kind of moot. Well, guess what? That's getting eaten up pretty soon right now, pretty quickly right now, probably sooner than maybe even the operators would have expected, to the point that it's got to be starting to be thought about when you consider how long capital investments take in potash before new capacity is built. I think it's at current trajectories here, that capacity, that extra capacity could easily be consumed before you could, if you started today, have extra capacity built on. I just really like the way that's playing out.
I'm looking forward to the day when we hear announcements from these operators that they're pouring more money into the assets to further grow out their capacity. Again, maybe that's a longer term answer to what you were asking, probably is more of a near term outcome. Look, they're ramping up production. T hey've got the extra capacity. It's the only place in the world that does, and demand is off scale, and food stocks are low. Farmers are making lots of money. It's a perfect storm.
Okay. Well, thanks for that. Just in terms of, you know, obviously you got a lot of lines in the water on different commodities, but is there any commodity in particular you guys are focusing on trying to increase your exposure to?
I think we cover the spectrum pretty decently. Maybe in the next big downturn, there might be some things we'll try to work harder on to add into the mix. F or now, I think you've heard me say this before, for this cycle anyway, I think our bets are largely in, either in the form of a part of the portfolio that's already cash flowing or all of these pipeline royalties that we're getting all this good news from right now. We just let it evolve as we go here. You know, if you looked at our weighting of revenues by commodity, and probably even more importantly, if you looked at our weighting on an ad basis, it won't look that far off of, you know, the mix of traded value across the broader metals commodity sector.
We feel like we're pretty balanced, but we'll always tweak.
Thanks. I appreciate the color, Craig.
Thank you, sir.
Again, participants, as a reminder to ask a question, you will need to press star then 1 on your telephone keypad. Again, that's star then 1 on your telephone keypad. Your next question comes from the line of Brian MacArthur from Raymond James. Your line is now open.
Good morning. Brian, I just wanted to follow up on your comment, that obviously you mentioned base metal prices are maybe not at the bottom right now. You're looking at potentially deals there, but not confident you'll get that done. Is that confidence based on, one, just you think prices are too high and the deals are difficult, or is it, two, in the overall scheme of balancing the company? Obviously, ARR has done very, very well at deploying funds. I mean, you own 59% of it. Apollo owns 50% there, so if they move forward, they need more funding. Is it a independent decision or is it part of balancing the overall portfolio? I mean, i.e., would you rather be putting more money into renewables now than even base metals?
Brian, I think it'd be fair to say we're, open-minded around M&A opportunities that might come up. You're definitely correct in saying that, from a metals pricing perspective, things aren't as attractive as they would have been, say, in 2015 and 2016 when we were really busy. That doesn't say that you can't still find, value and technical situations where you just have enough of the conviction around, long-term growth that you can't do something. I mean, more broadly, what we've got to balance these days when we look at M&A opportunity is, A, what we believe is a really strong internal growth pipeline. You know, to the extent that say an M&A transaction required us to use equity, well, that'd be really tough right now because we're diluting that optionality.
The other factor is, you know, it's all about assets. I think there's a high bar for us right now in terms of anything we look at not being dilutive to quality of our own portfolio. I guess it's a roundabout way of saying that we're open-minded, we're doing the work. It's very competitive out there. We know that. I just wanted to sort of set a bit of a cautious tone as people hear about all these processes and maybe get excited about, you know, sort of big splashy M&A that we're gonna hold our discipline here. We'll do our best. Meanwhile, as we've been saying for a while, what we've got embedded in our own structure is we feel really good about.
Again, our bets are in, and we think they're really strong.
Philosophically, putting more money into ARR from an Altius perspective, how do you think about that? I mean, obviously you'd like to be self-funding. Like you said, it's got cash flow now, so it probably can be. I f shares get cheap there, and once you can, do you buy more shares there if that's attractive?
Yeah, attractive. I mean, it is. It's the trajectory there and the way that thing is evolving and growing, adoption is taking place. It's been pretty remarkable to be part of, to be quite honest. I won't, you know, go as far as to box Altius Minerals into investment decisions, but, you know, if something comes up and there's more capital needed at ARR, I can say with a lot of confidence that at the Altius Minerals level, they're pretty open ears there.
Great. Thanks very much. It's great to have lots of different options.
Lots going on. Lots of fun. Thank you, Brian.
Your next question comes from the line of Orest Wowkodaw from Scotiabank. Your line is now open.
Oh, hi. It's actually Orest Wowkodaw here. Good morning, everybody.
Good morning.
I know you've spent a lot of time talking about M&A at the asset level. I'm just curious, more bigger picture, whether just given it's become obviously so competitive to find new opportunities. I'm wondering if you see any potential opportunities at the corporate level, perhaps from an M&A perspective to combine with another mid to small size royalty company, not only to diversify further, but also just to put your market cap into a different sphere of investable options for institutional money managers. I'm just curious if that's something that is, if you see opportunities out there.
I mean, you've hit upon a great debate topic, I guess. You know, there's certainly a common view out there that scale matters in terms of multiple expansions and those sorts of things. There's an argument for any business that they could get. It's a hard one for us to get our heads around. I mean, any kind of corporate transaction, really an asset transaction where it still boils down to the quality of the assets that are housed at the corporate or the portfolio sale. Would they be dilutive to generate full cycle earn if there are embedded optionality?
All the same kinds of questions that go into due diligence, but I can pretty much tell you as a company and as a board, growth for the mere sake of that doesn't make sense. Otherwise will not be happening.
If I could also ask, can you give us an update on where things sit with the litigation in Alberta, with respect to the phasing out of coal power?
Yes, I can. Things have been a bit delayed in Alberta, mostly due to COVID. I know there's a hearing coming up. If it's not the end of this month, it's early next month. We had a decision from, you know, at the sub-level, two courts in Alberta. It's a master, not a judge that hears it, who ruled against us in the litigation. That caused us to appeal now to the court system. We're actually in the court system right now. That's coming up pretty soon, at least the next hearing of that appeal, as to whether or not the lawsuit goes forward or not. Or maybe after the call, you could update.
I think there's a section on our website that sort of updates progress and filings there. Maybe you could make sure that that's updated for listeners.
Yeah.
They can keep on top of it.
Will do.
Seems, seems like-
The master decision is up there.
Is it? Okay.
Mm-hmm.
Yeah, that master decision has been appealed, and it'll be heard relatively soon.
Okay. Thank you very much.
Thank you, sir.
Your next question comes from the line of Adrian Day from Adrian Day Asset Management. Your line is now open.
Yes, thank you. Good morning, everyone. Well, the last speaker took my standard question on the coal lawsuit.
Mm-hmm.
Let me also ask you, if I may, about the prospect generator, the equity business where you're doing a superb job. I've often said Chad should become a money manager, but you obviously had some sales, and I don't know if these were primarily based on whether these were selling an entire stake in specific companies, or was it just, you know, trimming certain stakes? Then the second question on that equity business would be, are you actively buying new stakes in smaller companies, or are you just looking? Y ou got them, you got most of them through deals you did, but are you actively buying some in the market?
On the first part of the question, it hasn't been like, you know, sort of trimming across the whole portfolio. It has been pretty focused around a couple of names that might be a little less core for us just because, you know, we don't have, say, for example, an adjoining royalty interest or something. D ue to length, as much as anything for us to boost in liquidity, right? That's as much as when you manage the size of positions that we manage, that's a real big factor. I'm not gonna answer what the names are, but it's been fairly targeted. Yes, we are also in the market in certain cases adding to existing positions, adding other small positions here and there.
Most of the adds, I guess, would be to names that we already hold and that, you know, we continue to have great faith in. When we see market-based opportunity, we're active there. A few of these we're, you know, already filing on, but by virtue of the size of the position, you'll probably see that we've added to pretty regularly actually to Orogen. We've added to Adventus a little bit during the quarter. You know, just incremental bits and pieces along the way here when we see real good opportunities and value.
Okay. Superb. Thank you.
Thank you, Adrian.
Speaker, we don't have any questions over the phone. I would like to turn it back to Ms. Flora. Please continue.
Thank you, Francine, and I really want to thank everybody for dialing in. Great set of questions, and we'll look forward to speaking to you again after year-end results.
Thanks, everyone.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.