Good day, and thank you for standing by. Welcome to the Altius fourth quarter and year-end 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. Please be advised that today's conference call is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Flora Wood, Director of Investor Relations. Please go ahead.
Thank you, Dee. Good morning, everyone, and welcome to our Q4 conference call. You saw our press release and our annual filings yesterday after the close on the website. You'll see the AIF later in the reporting period. This event is being webcast live, and you'll be able to access a replay along with the presentation slides that have been added to our website at altiusminerals.com. Brian Dalton, CEO, and Ben Lewis, CFO, will both be speakers on the call, and then we'll open it up for the Q&A. The forward-looking statement on slide two applies to everything we say, both in our formal remarks and during the Q&A session. With that, I'll turn over to Ben to take us through the numbers.
Thank you, Flora, and good morning, everyone. We had a strong year and quarter, setting new records across most of our financial measures. EBITDA margins of 80% overall were solid and driven by an 87% margin in the mineral royalty segment, with some offsetting from higher public company costs and business development initiatives related to our renewable royalty segment. These renewable royalty-related G&A costs are expected to be offset by a growing revenue profile as ARR's royalty portfolio matures and takes on additional scale over the coming periods. The other obvious offset here can be found in the growth of the market value of our interest in ARR. Brian will speak more about that later. It's also important to point out that when considering our EBITDA and cash flow margins, that G&A and other business development costs associated with the project generation segment are directly factored into G&A.
On the other hand, the CAD 60 million of cash net of new investments received on equity sales generated by the PG business were not included in EBITDA or cash flow from operations figures and are instead primarily recognized as other comprehensive income. Looking at the table on page 29 of the MD&A reconciling earnings and adjusted earnings, you'll see we present each of the adjustment items on a pre-tax basis and one entry for tax deductions that aggregates all the tax impacts. If you have questions on individual tax rates for different items, we'd be happy to address those in the Q&A or offline. On a full-year basis, adjusted earnings per share was CAD 0.77 compared to CAD 0.36 per share in 2020.
The main adjusting items are impairments of CAD 8.9 million, consisting of a Q4 CAD 6 million goodwill write-down as 777 approaches closure and a CAD 2.9 million write-down recorded in Q2 2021 associated with the write-down of the Don mineral property earlier in the year. Offsetting that, we had a CAD 7.6 million gain on the reclassification of the investment in Adventus Mining and other adjustments for foreign exchange gains on disposal of mineral properties and share purchase warrants. Turning to capital allocation, an additional CAD 35.3 million was invested in the GBR joint venture by ARR to fund its share of the acquisition of renewable royalty interests. Apollo funded approximately $98 million during the year. We expect all future investments in the GBR to be funded on a 50/50 basis between ARR and Apollo.
We returned CAD 9.9 million to common shareholders in the form of common share dividends in 2021 and increased our dividend by 40% to 7 cents per quarter. We also bought back 821,100 shares under our normal course issuer bid at a cost of CAD 12.9 million. Repayments on our credit facilities totaled CAD 17 million during the year, leaving a year-end balance of CAD 170 million. Our balance sheet and liquidity continued to strengthen during the year. We ended 2021 with CAD 37 million in cash and cash equivalents, or CAD 100 million when including the ARR cash that is consolidated on the balance sheet. The value of our project generation portfolio was CAD 56 million at year-end, and our investment in Labrador Iron Ore Royalty Corporation was valued at CAD 108 million.
Our 59% ownership of ARR had a year-end market value of CAD 190 million, including the in-the-money value of share purchase warrants. We have CAD 106 million in available liquidity relating to our revolving credit facility as well. Generally speaking, our near-term focus remains on seeing growth emanate organically through advances across our existing asset base rather than through M&A-type initiatives. This focus remains in line with the long-term counter-cyclical investment strategies we've applied consistently, and that largely relate to the cost and availability of various competing forms of capital. Brian will outline in his remarks, we've been receiving increasingly strong signals of late relating to the various forms of organic growth that are developing within our business.
All that said, these are certainly uncertain times, or clearly uncertain times and volatile times, and we remain well positioned and poised to deploy direct capital should an unexpected opportunity present itself. With that, I'll hand it over to Brian to talk about the current environment and outlook. Thank you.
Thanks, Ben. I normally really look forward to collecting my thoughts for this quarterly call and update, but this one comes with some mixed emotions. While we've been saying for several years that conditions were ripening fundamentally for our assets portfolio to really deliver following now more than 10 years of widespread sector under-investment and resulting fundamental under-supply conditions, what has now emerged to dramatically accelerate this supply demand situation, we would gladly wish away if we could. There are plenty of good reasons for the very strong prices that characterize our various commodity exposures today, but the current geopolitical driven exacerbation of the situation cannot have the word good in any sense of the word said about it. It is in fact horrible.
As your business managers, it is not our role to feel embarrassed or apologetic about the higher expected revenues and investor interest that this backdrop has resulted in. Our positioning is obviously not in anticipation of, predicated upon, and certainly not in hopes of this type of benefit. It is our role to grow a strong long term business on behalf of shareholders and other stakeholders that can continue to play a supporting part in bringing the world the natural resources it now more than ever realizes that it so critically relies upon. We can also humbly encourage you to join us as fellow shareholders and individuals in sharing with those who are now being hurt so directly, and the many more who will be hurt as the further negative humanitarian impacts from all of this play out. With that said, let's turn to discussing the business.
Fourth quarter and full year both saw new royalty revenue, EBITDA and cash flow records at Altius. It was also an excellent year for our project generation business, with several new equity positions and early-stage royalties added through mineral project sales, exciting progress made with respect to certain royalties within the long term pipeline, and strong net sales of equities recorded. On a combined basis, royalty revenue and net PG sales totaled exactly CAD 100 million. 2021 was also a transformational year for our renewable energy focused royalty platform. This is a business line that was ultimately born of the challenges we faced when much of the expected remaining lives of our Alberta coal power royalties were essentially expropriated by government regulations. We are therefore very proud, and perhaps more honestly stated, as relieved to announce the Altius Renewable Royalties emerged so strongly as a replacement business.
Following a successful early year IPO and steady progress in growing sector adoption and capital deployment, the market value of Altius' holding ARR at the time of writing now totals more than CAD 240 million. This compares to CAD 62.5 million that we directly invested in establishing the business over its first few development years. No small measure of credit for this progress is acknowledged here to the Frank Getman-led New Hampshire-based operating team for their innovative thinking and remarkable heart, remarkable work ethic. They are only getting going. We've come to see our business over the past few years in terms of five key pillars. These include potash fertilizer royalties, base and battery metal royalties, high purity iron ore royalties, renewable energy royalties, and last but certainly not least, our original project generation business.
Potash is critical to the world meeting its food sustainability needs as it results in directly higher agricultural yields per unit of farmland. Its increasingly important role is therefore to help feed a growing world population while limiting deforestation and other land use conflicts. Our potash royalties benefited greatly from steadily increasing prices throughout the year that were largely a function of strong underlying global agricultural demand. We continue to experience normal lag effects in realized prices relevant to spot market indicators that are typically of about a quarter in duration. So some of this benefit is still ahead. Meanwhile, prices have continued to increase during the current year.
Operationally, it was a more mixed year in potash and our overall attributable royalty volumes were actually down slightly, mainly as a result of the earlier than expected closing off of the K-1 and K-2 production areas of the Esterhazy mine due to increased water inflows. Potash is ultimately a salt that is highly soluble in water. This resulted in acceleration of the transition of mining at Esterhazy to the new K-1 production area, a process that the operator of the mine, The Mosaic Company, has recently stated is due to be completed by the end of the current quarter. That will result in the resumption of historic annualized production levels. Our other operator, Nutrien, was able to increase production from its portfolio of mines as it continued to ramp up to the increased in-place capacities it had pre-invested in several years earlier.
It is noted that it expects further production increases during the current year at a time when obviously the world really needs it. I'm sure most of you are aware that the other major global potash production areas are located in Russia and Belarus, and the majority of that supply has obviously become unavailable for export. As a result, it is clear that some of the world's potash fertilizer requirements will go unmet this year. A key takeaway from this should be to underscore just how important and valuable the potash mines in Saskatchewan, Canada, really are. Not only are these the most technically sound deposits, in my mind, mines that the world has with tremendous remaining resources, they're also the most geopolitically stable.
Considering as well the high per unit capital intensity involved with bringing on new potash production and the long required lead times from investment to realized production, we continue to believe that their risk-adjusted relative value proposition is perhaps unrivaled in the entire mining industry. We have no doubt that many more cycles of investment and growth are ahead, for which Altius shareholders will be full beneficiaries with no share of the capital costs to bear. Our base and battery metals royalties also performed strongly during the year, largely due to higher realized prices, a trend which has continued thus far in 2022. All key operations performed well during the year, marking recoveries from various COVID-related and mechanical issues that were experienced in the prior years.
Of particular note was the beginning of underground production within the Voisey's Bay nickel-copper-cobalt district from the new Reid Brook mine, and progress towards the start of mining at the Eastern Deeps mine, which is expected later this year. Also, we note the achievement of a new annual throughput record at Sept-Îles. 777 delivered well. However, it should be noted that it is expected to deplete its resources later this year. We've had lots of great news early in 2022 relating to future organic growth of our base and battery metals portfolio. Adventus Mining was successful in negotiating a comprehensive mine finance package with strong industry players for the development of its copper-gold rich El Domo deposit in Ecuador. It is currently working hard to complete engineering and permitting processes in advance of a final production decision.
Here, Altius holds a 2% NSR royalty interest, and it commends the team at Adventus Mining for this latest achievement. Lundin Mining, operator of the Chapada project, also gave an initial indication of the results of its ongoing expansion study for the mine, suggesting that it is closing in on a target of expanding mine throughput levels to 32 million tons per year from 24 million tons per year currently. Perhaps even more importantly, particularly at a stream holder level, was the recent announcement of a distinct and high-grade discovery on the property within lands captured by our agreement. Initial drill results from the Saúva target have returned wide intercepts of copper-gold mineralization from a zone that begins at surface and remains open in all directions. Grade indications thus far suggest mineralization that is considerably richer than that currently being mined at Chapada.
Lundin Mining has suggested preliminarily that as further work is completed and evaluated, it could consider options for trucking materials from the new deposit to the existing processing facility, as well as for a new incremental mining processing center within the district. Lithium Royalty Corporation made strong progress during the year that included several new royalty financing completions, as well as seeing excellent progress within its existing royalty portfolio. LRC remains private, with Altius as a 12.6% shareholder, as well as the direct minority co-owner of certain of its royalties. At present, LRC portfolio consists of 18 royalties, with two of these currently producing and three more in construction, including Sigma Lithium's Grota do Cirilo project in Brazil, Zijin Mining's Tres Quebradas project in Argentina, and Core Lithium's Finniss project in Australia.
LRC also holds a portfolio of equity and off-take positions that relate to companies for which it has royalty financed. Finally, it is noted that during the current year, it will consider various corporate level options that include a potential sale or public offering. Turning to high purity iron ore, we had strong revenue growth related to our indirect royalty exposure to the Rio Tinto-controlled IOC mining complex in Labrador, which produces high-grade concentrate as well as both blast furnace and direct reduction products. Benchmark iron ore pricing averaged higher year-over-year but were also quite volatile, reaching record levels through the first half of the year before falling heavily through much of the second half. It began to recover late in the year and have continued to rebound strongly thus far in 2022.
The quality-based premiums and discounts relative to benchmark also continued a now multi-year pattern of increased widening, largely as a function of increased recognition of relative carbon outputs within steelmaking cost structures. High purity ore types are therefore becoming increasingly valuable because they result in lower carbon penalties per unit of steel production since they require less net coal additions. With this factor now in addition to the more traditional benefits related to higher iron ore content, reduced coal procurement costs, and plant efficiency benefits. To put some of this in context, we've noted that over the past three years, the average spread between low-end 58% iron ore and high-quality 66% iron ore has increased from 28% to 56%. Production at IOC was lower in 2021, however, with the operator citing labor and mechanical availabilities as the main challenges.
Its guidance for the current year suggests an improved production outlook as various recent development making and ore development investments are realized upon. It also noted that a new CEO has been hired to lead the operational improvements and overall strengthening of the operations, which we sense are becoming increasingly important to the offsetting of quality declines within Rio Tinto's broader iron ore portfolio. We are also looking forward to results from Champion Iron related to its ongoing re-engineering and re-scoping of the Kami Project, which was originated by Altius and over which it holds a 3% GSR royalty. This project is located near to both the IOC mining complex as well as Champion's existing Bloom Lake operations.
One key element of this work relates to further increasing maturity levels of the iron ore concentrate it can produce to levels that could allow it to serve the growing electric arc furnace-based steelmaking sector. EAF furnaces require no coal input during steelmaking. Champion has stated that it expects to provide updated feasibility results for Kami towards the end of the year. We've already touched on the ARR and its strong 2021, so not much more needs to be added there. ARR in 2022 continues to be very busy with advancing new investment initiatives as the adoption of the royalty model takes broader hold within that sector. It also expects to see a meaningful buildup of royalty revenues from its existing portfolio of operating assets and solid progress across many of its development-stage project interests.
I would encourage interested shareholders and investors to review the details of its direct annual and quarterly reporting and commentary that was issued late last week. Our project generation business is essentially our direct exploration arm through which we seek to organically grow our long-term royalty pipeline, as well as benefit from exposure to the public junior mining sector. What we do there basically is generate mineral projects and sell them on to typically junior mining companies in exchange for equity positions and royalties. The value of the junior equity portfolio increased to CAD 55.5 million at year-end from CAD 52 million at the end of 2020. This, however, does not include the further realization of CAD 16 million in net proceeds from the portfolio, which is the total of investment monetizations relative to new investments completed during the year.
I wish to commend the PG team for this performance, particularly since 2021 could now be considered a particularly strong year for the junior mining sector. Despite the general strength of metal commodities, the TSX Venture Exchange was actually down on the year, in fact, just underscoring how strongly the team performed with their management. Another key performance indicator that the PG group tracks is the amount of exploration-focused drilling that occurs across its equity and royalty portfolio. It's a bit of an intangible, but we think it may be the most important long-term indicator of optionality and free growth that really exists across our business. In 2021, we estimate that 225 km of drilling were completed, and our preliminary estimate for 2022 currently stands at more than 300 km.
Definitely last, but certainly not least, we highlight a very recent announcement by AngloGold Ashanti related to the Silicon projects in Nevada. Altius has a 1.5% NSR royalty on this project that relates to a grub stake type agreement that resulted in the origination of the project several years ago. AngloGold has announced a significant major maiden resource from the oxide portion of the Central Silicon deposit, while noting that further mineralization exists in an underlying sulfide zone, and also that a further discovery at the Merlin target to the immediate south of Central Silicon has been made. It has further outlined in its published materials and in investment presentations that it sees the district as representing a tier one opportunity with its preliminary development strategy envisioning conservatively more than 300,000 oz per year of gold production for more than 15 years.
That concludes my remarks. Sorry if it was a little lengthier than usual, but obviously there's been a lot happening. With that, I will turn it over to your questions. Thank you.
At this time, if you would like to ask a question, simply press star then the number one on your telephone keypad. Your first question comes from the line of Orest Wowkodaw of Scotiabank.
Well, hi, good morning. It's Orest here from Scotia. A couple questions if I could about the potash business. Obviously, we've seen pricing really accelerate recently on geopolitical events. Can you give us a bit of guidance on, based on the ramp up from Nutrien and the subsidiaries there, what kind of volume do you think this business, your share, could look like in 2022 and 2023? I mean, the business looks like it's been tracking around 1.7 million tons for 2021. Just wondering how much upside there is to that number based on increasing volumes coming from Nutrien.
Yeah. Well, current operational capacity, which seems very likely to run at peak this year, I believe there's somewhere around 50% remaining between that and nameplate capacities. Now, I know work has to be done really to make that operational, but I can't imagine there aren't enormous pressures of all types on Nutrien to accelerate that now. The only caution I'd have in just trying to do a straight, you know, take to whatever that differential is and apply it to what our attributable revenues are, is to make sure you account for the varying royalty rates that we have across some of the assets. I think with Nutrien, we are exposed to five of their six major mines, but we have varying interests by mine.
You know, to the extent that volumes increase on a mine that we have a high royalty interest on, we'll have an outsized benefit and the same is true inversely. Last year on our investor day, I think the presentation is still up on our website, we get into quite a bit of detail around our, you know, how much capacity we've left at each mine, as well as explaining what our direct royalty exposure is to those mines. That'd be the best resource there I think for us. But as far as how fast they ramp up the nameplate, it's anybody's question. It's obviously a very geopolitical one. The world could certainly use every bit of it right now if they could bring it.
Maybe I could ask it a different way. Assuming Nutrien ramps up to full capacity, what does that mean for you with respect to attributable volume?
More or less 50% from here.
50% upside from the 1.7. Okay.
Yeah. That'd be my math. I'd have to confirm, but that would be if you just look at current operational capacity relative to nameplate capacity, that's around what I think is remaining today.
On the realization related to the potash price, you mentioned earlier that there's about a one quarter lag. We've seen a fairly big kind of discount to the benchmark because the price has been rising. You know, can I assume that once the sort of price steadies out, wherever that may be, that your realization should be at no discount to the benchmark, outside of timing, this one quarter timing lag? Is there some kind of call it perpetual discount that we should think about for the potash price?
No, not a perpetual discount. A perpetual lag is all you really need to think about. In fact, you know, if you go back to the period, say, 2016 or so, maybe through 2018, I don't know. There's a stretch in our history of ownership where we were in falling prices. In that case, we were actually realizing higher than spots. You know, it works both ways. It works both ways. It's just that obviously in the past year and a half, the move has been very dramatic and upwards. I mean, I agree. You look at spot prices and then at our realized price, it seems like, wow, they really, you know, it's really discounted, but it's just how much the price moved in that period is all it really is.
Thanks for the color, Brian.
No worries. Cheers.
Your next question comes from the line of Carey MacRury of Canaccord Genuity.
Hey, good morning, Brian. Maybe just another question on potash here. You know, you had the big step up in Q4 again due to the lag, and I'm assuming we should see another big step up in Q1 here. Just given that Q1 mostly, you know, we're almost through it, do you have a sense of maybe just more short term what Q1 potentially looks like relative to Q4 on the potash side? In terms of revenue.
As far as like, again, if you're trying to be predictive around that, you know, it does actually mean the products we receive royalties on goes to a whole bunch of markets. Really the calculation is based on an FOB price in Saskatchewan. A ton sold age under a long-term contract with more freight on it won't realize as much as, you know, as one sold next to the mine in Saskatchewan. There's a whole bunch of factors in there. That said, it tends to really closely follow Midwest U.S. prices. That's been consistent since we owned them. If the product mix and where it goes in the world shifts dramatically, I'm sure that correlation would break down.
For now, what we're seeing is that, if you take the average price of the last quarter, for U.S. Midwest, it tracks remarkably well.
Well, I can't be any more leading than that. That's fair. I guess just given that math, we should see a pretty reasonable step up in Q1 at a minimum.
There's no real reason to believe that our realized pricing in first quarter won't look something like the spot pricing in the previous quarters.
Okay. Fair enough. Maybe switching gears to renewables, you know, just in light of the Apex news, can you just comment a bit about that and just sort of how does that change the outlook for new renewable investment?
There have been some shifts. We talked about this on the ARR call the other day. You know, again, when we got going with renewables first, we were originally attracted in thinking that what we were doing is financing sort of construction stage projects with royalty finance. We weren't able to do much there because the competing cost of capital was just too low. We did find good opportunity with developers who had a harder time. There's been a remarkable shift there in the past year or so. It's actually gotten quite a bit easier for developers to attract capital, and there seems to be huge demand from big players to buy their entire portfolio. You know, obviously, it's—they're in windfall times, but it's not super attractive for us as far as deploying capital.
What's offset that, ironically, is that it's gotten tougher and more expensive for construction stage projects. Part of it, part of that's a function of a very quickly growing aversion to locking in and hedging prices. Like, their low cost of capital, you know, that was the backdrop when we got started, was as much a function of, as anything, of the fact that they had everything hedged out, meaning that they could put pretty high leverage and, you know, they were very attractive to pension-type, infrastructure-type investors. As they come off of that, realizing that prices really can only go in one direction for renewable power here, and want more market-based exposures, it reduces the amount of leverage they can put on a project. More
Basically mean more money has to come from the equity side of the ledger. That's what we're able to compete quite effectively with. We're seeing a lot more deal flow for investment in projects that are, you know, either late construction or operational stage. It's not. I don't know, I mean, all these things can reverse again very quickly, and we'll essentially just roll with the punches. For the time being, that's the shift we've seen in the past year, and that's essentially how we've responded. Again, I'd see more opportunity for near-term deal flow in later stage. Obviously the benefit there is that it's more immediately cash flowing type investment opportunity.
Okay, great. Maybe just one last one for me. I noticed in the MD&A, you talk about IOC and, you know, the potential to expand the mine life there. Just wondering if you can give a bit of color on what you're seeing there.
For IOC, I don't know if it's much about the mine life. It just opened up a new big area. Just finished permitting that early last year. I mean, obviously it will incrementally add to the overall mine life. But as much as anything, my understanding is that it just brings in a slightly different rock hardness into the mix, so they can, you know, better optimize the overall blend going into the front end of the mill. So there. You know, that's meant to have obviously, yes, longevity benefits, but I think operationally it's meant to be important too. There's a lot of resource ultimately up on that project.
It might not all show up as reserves, but if you just look at the geology and historic, you know, broader resource estimates, there's really no reason why IOC couldn't run at multiples of its current production rate and still have a very, very long mine life. Maybe we're getting into those conditions now with such increased emphasis on high quality ores that that becomes on the table, but we haven't heard that from IOC directly. It would seem quite logical, in fact, particularly if you consider that recently IOC, Rio Tinto has started to use concentrates from the Labrador Trough to blend some of the lower quality material that's coming out of their Australian production. In essence, they're using Labrador material to make the worst part of their Australian production even saleable.
I think it has taken on a greater importance within the organization overall, but again, I'm waving arms and speculating, but I don't think I'm being illogical either.
All right, great. Thanks, and congrats on a record quarter and year.
Thank you, sir.
Your next question comes from the line of Craig Hutchison of TD Securities.
Hey, good morning, guys.
Hey.
My question's on Silicon. You guys announced or AngloGold Ashanti announced a maiden resource for the project of around 3.4 million oz. My understanding is also your royalty also encompasses North Bullfrog as well. Any sense on what the sort of total resource for that package is at this point, or is it just too early?
I mean, there's things you can compile. I don't know what categories and what not they'd be in, but I think Corvus used to talk about North Bullfrog total resource in the 2-2.5 million ounce category. We've obviously seen 3.4, I think, announced for Silicon Central. That's just the oxide part. That doesn't take in sulfide zones beneath that Anglo's already said that they've discovered. Probably the bigger mystery factor is the Merlin target, which is south of Central Silicon. We've got a number in our mind for that, but it's our number.
All we've done, anyone who's really industrious, is that deposit essentially straddled the property boundary to the south, and in fact, it very much seems like it goes onto land held by Core. Within, there's a narrow strip in the middle that was held by Corvus, and Corvus did publish results. They drilled a section right across that. For you know, for any geologist that wanna have some fun here, you can start to look at the drill pattern that Anglo has across the Merlin zone and do some extrapolation up from the results that Corvus provided for the Lynnda Strip section. We have a guess, but I don't think it'll be all that long before we actually get real numbers. We think it's meaningful.
Sure. Obviously, it would be a very meaningful royalty to you guys. Would you guys consider kind of monetizing that in favor of a base metal royalty at some point this year, or is it just too early again on that?
It's early for that. We've got a bunch of options there. I mean, first and foremost being just, you know, letting things play out and let the full scale of the resource become better understood. You know, it's pretty early days for a, what looks to be a major new district discovery in Nevada. You know, presumably that revenue contribution could be meaningful to us. I mean, I know where you're going with this. It's unlikely that a royalty on a major gold discovery in Nevada would be valued as highly within Altius as it would be within, say, a pure precious metals company.
Right.
You know, there's other alternatives as well. We could liberate it from Altius Minerals as a more pure play vehicle, you know, sort of ARR-like. Sure, we'd consider any kind of creative structures if we can capture that arbitrage between how this type of asset might be valued within Altius and other companies. No real hurry there. There's lots of fun to be had just watching this play out for now.
Okay, great. One last question from me. Just in terms of Lithium Royalty Corp, I think you mentioned in your opening remarks potential sale or something this year, or any additional color on what could kind of crystallize value for that asset would be appreciated. Thanks.
Yeah. I guess it's just part of, you know, sort of normal course exploring of options. LRC is, amongst its options here, considering potentially selling the business or IPO-ing. I know there's been a lot of Street interest in that IPO concept. I don't know if it happens, and we're a 12.5% shareholder, so it's not our call. To the extent that it does, it could be quite a crystallizing event for us. Obviously, that business, since we invested, has undergone remarkable growth and has also benefited from a complete new outlook on what the long-term price of lithium should be. If a valuation were established and crystallized here, we'd expect to be pretty happy about it.
Great. Thanks, guys.
Thank you.
Your next question comes from the line of Brian MacArthur of Raymond James.
Good morning. I'm sorry to do this, but can I just go back to the potash because you made a comment about double capacity effectively, which I think is referring to the entire capacity of the system. As I think about this going forward, obviously the biggest royalty is on Rocanville, then Esterhazy, and then Vanscoy, Cory, and Allan are lower. That 1.7 million tons that Orest was referring to, should I assume, am I thinking of this right, that, you know, at currently utilization of Rocanville is quite high, you get a big royalty there, it'll probably go up a little bit so you do a big kick there. Then K-3 comes, which again, you have a pretty good royalty on there.
That growth rate will probably be a little higher in the near term from those big mines before the capacity gets filled at the smaller mines where you get a lower royalty. Is that kind of the right way to think about it?
Yeah, but there's more factors.
Okay.
For a few years since we've owned these royalties, we actually saw a higher growth rate in attributable volumes than the total network, say, within Nutrien and Mosaic were indicating. It was because there was outsized growth coming from Rocanville and Esterhazy, which are obviously the low cost mines in the system, so it's logical that they get filled out first. You know, it was an outsized relative benefit to us. To the extent that they completely fill up and you're going down the food chain to, you know, higher cost assets down the line, you know, that will, you know, we would probably even lag the overall portfolio production rates, growth rates of the operators.
There's more to it than just, you know, filling up one mine's capacity because it's the lowest cost, and then moving on to the next and the next. I mean, there's a whole lot of things being managed, including different product types, you know, labor availability, equipment availability. You know, I think it's a much more delicate management act within, you know, for those portfolios overall. So look, I think the safe way to do it is to just, again, look at the nameplate capacities of the mines, compare it to how much of that has been commissioned as operational. And the delta there is the, sort of the opportunity set that's been pre-invested and funded. Again, I try, don't worry, but it's impossible, I think, to actually really be that predictive here.
There's just so many factors. You know, I just look at it now that over time, I'd expect that nameplate capacity to fill out. Why wouldn't it? They invested in that for a reason. I tell you what I look more towards there now is when I look at the pace at which volume has been growing within the portfolios. We're not as far away from all that nameplate capacity potentially being reached as I think most people think. You know, recent events notwithstanding that quite frankly, we could use all of it right now as a world.
We're probably gonna, you know, be talking about famine this year because of this stuff. But the other thing to remember here is that you can't just then decide, you know, oh, okay, well, we'll go ahead, and we'll make an investment to further grow out capacity. You know, we're getting up against nameplates now, and now we got to go again. You don't make that decision with a view to having capacity available in six months. It's more like seven or 10 years. You know, these guys have got to start thinking about if they're, you know, if the goal is to hold market share long term or grow market share long term, you know, they soon got to start thinking about this. Maybe it's even now, because again, otherwise there will be a gap.
Again, if that capacity is projected to fill out completely in seven years, you know you're probably already at the limit if not too late.
Great. That color is very helpful. Maybe just switching to a couple other things. Is there any update on the coal litigation? I assume even in this world, you don't assume that's coming back or anything, but I don't know, maybe that option still is there. Any update there would be useful.
Oh, no, it's very much alive. We had a hearing, I think it was in early December. You know, that was the challenge. There was a lower sort of judiciary body that originally granted, you know. There was an application made by the government to have it thrown out, essentially, which was in this lower judiciary body granted, which we of course appealed. That was heard in January or December. We're still waiting on the outcome of that. You know, for anyone who's really interested in this sort of stuff, it's also important, I think, right now to be tracking a current Supreme Court case that's underway. It's been heard and waiting for results on it. It really deals with this issue of what constitutes an effective expropriation or a regulatory expropriation.
It's been a kind of an open issue in Canadian law for some time. A case has just gone through that should probably settle things once and for all. I expect our fortunes are very tied to what the result of that might be. Still very much alive. We believe these were stolen from us, and we are pursuing compensation for them.
No. Sorry. That's very helpful. I also just, I mean, there's no chance in your view that Sheerness or something might come back given the situation the world's getting us in with the price of other commodities alternatives?
I mean, technically, Sheerness's Genesee, they don't, you know, they're on a path right now to convert to gas, and it's actually well in advance of the regulatory deadline that they have to stop burning coal, which is 2029-2030. You know, but they've invested more proactively around that. Look, if we've got to go, might as well go. They took the compensation money they were granted by the government, and they've invested in conversion. Genesee is in the process. Sheerness is essentially complete. But I don't know exactly. No one indicates to Sheerness that they've maintained the optionality to keep, you know, or flip back to coal if conditions warranted. I'd have to get back to you a little bit on that.
I would note that, while there's been some move in the price of gas, because that's really the pure economics that you're factoring in here, it's gonna be what's the cost of me mining my coal, what's the carbon tax on top of that, relative to what's the cost of buying gas and what's the carbon tax on top of that. That's the pure economic equation. The gas prices are certainly up in Alberta. They're in the CAD 5-ish kind of range right now. We're not talking about, you know, European type gas prices here as a competing fuel. Carbon to coal, Brian, who knows?
No, I just hear.
Try to figure things like that out and.
Well, I was just looking for you another optionality in the portfolio that nobody thinks about. Anyway, thank you very much for all the color.
Any of those ideas you have, throw them along. We love hearing those ideas.
Great. Thank you very much.
All right. Cheers. Thank you.
Your next question comes from the line of John Tumazos of John Tumazos Very Independent Research, LLC.
This is John Tumazos. I hope it was me they invited to make a question. Hope you're all well. Thank you. As long as they don't curse me out, I don't care what they call me. In terms of the iron ore assets in Eastern Canada, as mining people, we might focus on the reserves and resources, but the logistics are also important. How much is the slot capacity on Rio Tinto's railroad and the Sept-Îles Port to support potential expansions at IOC or the Champion assets with Kami and the North Project, and other things being explored? You know, how is the geology is good, how good is the logistics?
Yeah. Lots of resource there. From a logistics point of view, rail is not a problem. I haven't really looked at that in a while, so I can't give you exact numbers, but I'm gonna say that, you know, you could easily double total capacity from the region right now and probably with some modest investment in sidings go way beyond that. Ports, you've got the multi-user port that has extra capacity on it, and it's got lots of room for further expansion. Rio obviously has its own port facility. If there's a near term constraint, and this might surprise some people, it's probably hydropower. There's some capacity and room there. I know that there, you know, there was a block that was allotted for Tammy when it was previously brought forward.
For that kind of mega scale expansion, for anyone who's familiar with the region, I know how much gets talked about in terms of hydropower and politics and projects and everything else. To hear that it actually is the limiting factor will probably come as a shock. Today, I would say that's it.
Thank you.
Thank you.
Your next question comes from Adrian Day of Adrian Day Asset Management.
Hi, Brian. Gosh, my question's already been answered. I'm really sorry. I didn't have to take myself out of the queue, but thank you.
No worries. Thank you.
I'm showing no other questions at this time. I will turn the call back over to Flora.
Thank you, Dee. I'm asking a couple of questions from a shareholder who couldn't join the call because of time zone differences. First one, Brian, is in the MD&A, in the capital allocation section, we got a mention of a $5 million USD convertible loan that's made to Invert, Inc., which is a carbon credit solutions company. He's asking how you see that opportunity. Is it potentially a large opportunity?
I don't know if the particular investment represents a large opportunity, but we have been studying what's going on with the, I guess, the voluntary and then as well, the interaction between the voluntary and regulated carbon markets. I don't really think there's much left to debate about the scale that that market overall is likely to take on. In fact, in terms of total traded dollar value, I think it's gonna rival some of the big, you know, main commodities of the world before too long. It's interesting to us and obviously, you know, that market and its dynamics have lots of impacts on our business. I mean, you only got to think back to what we went through with the coal and obviously our direct involvement now within the renewable space.
You know, it would be silly not to be thinking about that. We've made this investment. We think is a really good, strong technical group, you know, in many ways to help motivate our ongoing learning. It is a market more broadly that we're interested in because we think it could emerge, you know, as something that very easily fits and dovetails with our other interests. It'd be early days to go and try to say that it's, you know, it's the next ARR or something like that. It's a bit more exploratory at this point, but we really like the team there. It's an early stage bet.
Okay. Thanks, Brian. That's actually good lead in because the other question's about ARR, and it's about the upside in the royalties. We've got U.S. renewables investments. The shareholder's pointed out that there's been a lot of news about Bitcoin and crypto mining, with renewables being the power source in Texas, for example. Wondering about the scope of our royalties, would it encompass that?
I know in presentations I've done with Frank, he often joked that if they sold hunting licenses on the properties, we'd our definition of gross royalty would capture that. Probably the way I think about that question more broadly is one of the huge challenges in renewables in the U.S. right now is a real backlog in terms of getting interconnected to grids. There's just so many of these projects trying to connect that it is quite a current bottleneck. What you're seeing as a response to that in some cases is, you know, kind of a trend towards more behind the meter type development. In other words, you know, the wind farm is right there, but it can't connect to a grid.
The response then is Amazon or somebody builds a data center right next to the wind farm, and they become more directly integrated. That way you can get away somewhat from the whole interconnection challenge. To the extent that direct customer, that dedicated customer, I suppose, ended up right on the royalty land, maybe. But I don't think that's a real practical way to think about it. It's probably more likely that, you know, a Bitcoin farm or a data center would be, you know, located somewhat distantly from the site. Our definition of growth revenue relates directly to the site. The physical footprint.
Thanks, Brian. Dee, I think you got one other question there.
Yes. We have a question from Peter Krah, and he is a private investor.
Oh, hey, Brian, am I live?
Yes.
Hey, Brian, I got on the call just a little bit late, so I don't know if you touched on this. I apologize if you did, but you keep building up this cash. I saw you retired about 2% of the stock last year. You know, what's the official word, if there is an official word, on your plans to continue that program, buying back shares?
We normally in May tackle, you know, sort of new direction or any kind of adjustments we're gonna make to broader capital allocation. We're scheduled for that around the time of the next quarterly meeting with a strategy session. Generally speaking, the broad categories are, you know, what do we see in terms of near and longer-term growth? How do we feel about leverage levels? That might be a bit more topical this year because I guess who knows what's gonna happen with interest rates in this environment. Obviously shareholder capital return, so regular dividends, special dividends, buybacks, all of those things are in the mix. You know, for sure one of the priorities, though, longer term is gonna be just further strengthening of the balance sheet and being poised for longer term opportunity.
I'm sorry, I can't really, like, specifically say, oh, we've got this much allocated to this, and we're gonna buy this many shares back. Quite frankly, our buybacks are not really like that. We don't just say we're gonna put this much money into buyback every year. We tend to look at it a bit more opportunistically. We almost look at our buyback in the same way we look at M&A. You know, when we buy shares of Altius, we look at it as if we were buying the whole company. Anyway, stay with us for a little bit on that, and towards May, in the May period, I think we'll have a lot more clarity on what we see as near-term allocations.
I'll just mention, Brian, from a shareholder's perspective, I like the fact that our interests are aligned with your interests, so keep up the good work.
There you go. Well, as long as those interests are at both short-term and medium-term and long-term interests align, we're all gonna be happy together.
Thanks.
All right. Thank you.
Your next question comes from the line of Carey MacRury of Canaccord Genuity.
Hey, Brian. Just had a couple of follow-ups here. First, just on the Fairfax warrants, obviously in the money here. Can you just remind us what, you know, the terms around those warrants are? Is that something that they would exercise or what the expiry date, et c.?
They can exercise at any time, quite frankly. The way the original agreement—that would have been back in 2017. The strike price on the warrants is 15. I think we did it, the stock was just under 15. It's a CAD 15 exercise price. I think the way it was meant to be, it would expire in April of this year, except in the event that the share price was CAD 24 or higher, in which case they would naturally extend for two years.
Okay. You're currently sitting above CAD 24, so.
Exactly. We shall see.
I guess.
From the perspective of that, I'm just, you know, obviously tickled pink that it's worked out so well for Fairfax and remind everyone that the main part of that deal was a CAD 100 million preferred investment that Fairfax made, which ultimately resulted in buying our position in Labrador, half of the potash and seed funding the renewables business. If ever there was a win-win deal in the world, this one's starting to feel like it. I would also say that if Fairfax were to exercise the warrants, at least every indication I've had in the past that, you know, the goal here ultimately would be just to slide into the position of long-term shareholder.
Great. Maybe one other question. You know, your market cap's pushing on CAD 1 billion now. Have you guys looked at the potential for like, you know, index inclusion, you know, given that larger size or is that something that. Is there an opportunity there that you'd look at?
Actually, good point. I didn't raise in the quarterly because it was kind of funny when it happened. We didn't expect it, but we recently were added to the Canadian Dividend Aristocrats Index, which was kind of neat. I don't know, Carey, to be honest with you. I haven't really tracked what the inclusion mechanisms are, and I don't think we actually get to have much influence or say in it. You may be right. Maybe CAD 1 billion could be a magic number for some of those types of inclusions. There'd be people in your industry probably better able to speak to that than me.
Okay. Great. Thanks, Brian.
Cheers.
I'm showing no further questions. Are there any closing remarks?
That's great, Dee. I would really like to thank everybody for joining. The questions were great, and we'll look forward to talking to everybody shortly in Q1. Thanks, everybody.
Thank you. This concludes today's conference call. You may now disconnect.