Good day and thank you for standing by. Welcome to the Altius Q1 2022 Financial Results. 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. If you require any further assistance, please press star zero. I would now like to hand the conference over to Flora Wood. Please go ahead.
Thank you, Mary. Good morning, everyone, and welcome to our Q1 conference 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 our website.
Brian Dalton, CEO, and Ben Lewis, CFO, are both speakers on the call, and following their remarks, we'll open it up for questions. The forward-looking statement is on slide two and applies to everything we say, both in our formal remarks and during the Q&A. With that, I'll turn over to Ben to take us through the numbers.
Thank you, Flora, and good morning, everyone, and thank you for joining. Q1 attributable royalty revenue of CAD 25.5 million or CAD 0.62 per share was up 44% year-over-year, mainly thanks to increased potash revenue and a strong base metals quarter. Additional non-recurring and project generation-related revenue of CAD 3 million was also recorded during the quarter.
Q1 adjusted EBITDA was CAD 23.6 million, or CAD 0.57 per share, up 62% year-over-year. EBITDA margins of 83% are up from 80% a year ago following the trend in revenue, but partially offset by higher expenses for ARR, which went public in the second part of Q1 last year. The mineral royalties EBITDA was 86%. Q1 adjusted operating cash flow was CAD 14.2 million, up 61% year-over-year.
Adjusted operating cash flow also followed the general revenue trend and is net of CAD 5.5 million in cash taxes paid. Adjusted earnings for the quarter was CAD 8.8 million, compared to CAD 6.1 million in the same quarter last year. Adjusted EPS was CAD 0.21, compared to CAD 0.15 in Q1 2021.
The main adjusting items are CAD 539 thousand in foreign exchange gains, approximately CAD 1 million as a gain on disposal of mineral properties during the quarter, and CAD 2.9 million in investment income relating to a Chilean project generation initiative. Offsetting these items was a CAD 313 thousand unrealized loss on fair value adjustment of derivatives. Turning to capital allocation, we made an investment during the quarter of CAD 5 million into Invert Inc in the form of a secured convertible note.
We also amended our royalty agreement related to Wolfden's Picket Mountain project to receive additional timber royalty rights and any related carbon credits in exchange for $1 million. We paid CAD 2.7 million in dividends in the Q1 and bought back 10,000 shares under the normal course issuer bid for a cost of CAD 165,000.
We ended the quarter with CAD 34 million in cash and cash equivalents, excluding the ARR cash that is included in our consolidated results. Subsequent to quarter end, two events deserve attention. First, Fairfax exercised their 6.7 million warrants, with the proceeds used to redeem $100 million worth of preferred securities that it also held. As a result, Fairfax has become our largest shareholder, and we have eliminated CAD 5 million in annual preferred share dividends.
We are also pleased to see the beginning of an expected revenue ramp up at ARR and the Q1 of positive cash flow for its underlying GBR joint venture business. With that, I'll turn it over to Brian to talk about the investment climate and give some views on these outlooks. Thank you.
Thank you, Flora. Thank you, Ben. Our Q1 was marked by record levels of royalty revenue that were largely due to higher prices and relatively stable operational performance across our diversified portfolio. Perhaps more importantly, from a long-term perspective, it was also characterized by several positive developments regarding various embedded growth prospects, which is where I will focus my remarks today.
Starting with potash, recall that we acquired our royalties on most of these Saskatchewan mines in two tranches in 2014 and 2018. At the time of the original investment, the key feature of attraction was the nearing completion of a series of major capital investments that were designed to significantly move up nameplate operating capacities. These investments had been incentivized during a strong price run up 7-8 years prior.
We believed, although it was not certainly not the wider market narrative at the time, that these additional tons will be needed by the market sooner rather than later, and that therefore, the production volumes we were buying were going to increase significantly as compounding demand growth ran its course.
Make the purchase price even more attractive on a long-term basis. Moreover, we believe that over time, these ultra-long life operations would continue to successfully attract investment and expand further. We paid a little more to buy the second tranche four years later, but at a time when ramp-up had begun progressing and the next phase of growth investing was looming closer.
Fast-forward to today, and we are seeing the incremental tons that remain being placed as quickly as possible into a market that looks like we'll have unmet demand this year, and that is experiencing pricing levels similar to the previous investment and consolidation period. This has, in turn, caused the investment community to suddenly start pressing the operators on when they will begin a new wave of capital investing in longer-term growth.
In potash, it is always important to note the long lead times required to build new production capacity, meaning that these commitments must come sooner rather than later, or the operators face losing the market, global market share gains they've made, or worse, global demand facing long-term undersupply conditions. My last comment here is to say that recent geopolitical events have fully solidified the importance of Saskatchewan and Canadian-based potash to global food security.
Given high capital intensity and long lead times for the industry generally, and the increasing relative risk-based cost of capital in competing major production jurisdictions, we continue to believe that our royalties in potash relate to the most important mines of any commodity type in the world, and that their scale and value will only continue to increase. The signaling for the next phase of this has already begun. In base and battery metals, we are similarly feeling quite positive on the internal growth possibilities.
At Chapada, there was exciting news announced during the quarter surrounding a new discovery called Saúva. Apologies to any Portuguese speakers on my pronunciation there. A little fun fact, the name actually translates into leafcutter ant. The discovery is located a little ways north of the existing resource and production area at Chapada. The deposit footprint is rapidly being delineated and expanded.
It has some intriguing early signs of being a more intense mineralizing system than the current area being mined, based upon the alteration assemblage and mineralogy being described, as well as indications of having a markedly higher copper grade. While it's still early days, with much work to be done in delineation and other studies, the obvious potential as it relates to our stream interest is the prospect of a longer total resource life and higher annual copper production volumes.
These could come either through a blended average grade improvement at the existing processing facilities, or more intriguingly, a second processing facility on the property. At Voisey's Bay, we continue to believe that there remains excellent potential for the operation to continue beyond its currently stated resource life. This could come through exploration success, or more simply through the lowering of cut-off grades for resource calculations at the mine.
Significant quantities of known mineralization exist at Voisey's Bay that are not incorporated into the current mine plan. It was modeled in a lower nickel price environment, and prior to the growth in relative demand for premium quality and low carbon footprint nickel emerging in response to EV and other battery requirements. Vale's announcement during the quarter that it has entered into long-term supply agreements with Tesla for its Canadian production underscore this feature.
Adventus achieved a major milestone during the quarter with respect to the copper-gold Curipamba project in Ecuador, when it announced a comprehensive project finance package that is backed by both Wheaton and Trafigura. The project features very strong feasibility results and is currently in the process of seeking to secure environmental and other approvals that are required before commencing construction. We expect progress announcements throughout the remainder of the year.
Our various exposures to the Labrador Trough iron ore district and its high purity material that results in the lowering of carbon footprints during steelmaking continue to show signs of driving volume growth within our portfolio. Rio Tinto's IOC announced significantly expanded growth-focused investment levels during the quarter. While Champion continues to advance the re-scoping of the Kami project as it considers next growth opportunities following its recent achievement of first production from its Bloom Lake expansion.
Results from the Kami study are expected later in the year. We'd also like to highlight the remarkable progress being made by Lithium Royalty Corporation. Altius holds a privately held founding equity position in LRC, as well as direct interests in two of its advanced stage royalties it acquired through co-participation rights.
It has grown its portfolio of royalties to 19, with four of these expected to be generating revenues in 2022 and another two possible next year. Lithium prices also continue to be very strong and are being supported by global EV sales that look to be hitting the steep part of the adoption curve. LRC has further commented that it is exploring possibilities for an IPO or corporate transaction later this year that we believe could result in a material crystallization of value for us.
We have seen strong potential emerge from our Nevada-based Silicon Project gold royalty interest during the quarter. While this is perhaps an unusual commodity to think about for Altius, given our diversified and generally non-precious metal focus, Silicon Project is quickly emerging as a potentially very important royalty asset. Early indications suggest world-class potential, in fact, with production potential from several discovery areas.
The operator, AngloGold Ashanti, has announced a significant maiden resource and the commencement of a pre-feasibility study for the Silicon Main discovery, and the commencement of a resource estimate and concept study for the Merlin discovery. It has also indicated additional target areas are showing promise and receiving considerable drilling attention, including at the new Maverick discovery, among others.
These developments from across our mining royalty portfolio provide strong validation for our contention over the past two years that the current paying royalties represent the tip of the proverbial iceberg within our portfolio. Moreover, the growth potential comes at little or no cost to us as top-line revenue participants. The signals around option value realization and growth therefore represent what we consider to be the main highlight of Q1 2022, despite it also being a record royalty revenue quarter.
ARR continues to build out its portfolio with a new developer financing announced with Bluestar Energy Capital, which is headed by one of the most successful leaders in the global renewable development sector. This new relationship continues ARR's strong deployment record since IPO just over a year ago, and opens up several new possibilities, including for international expansion and bespoke renewable energy solutions for mining and other industry sectors as they pursue decarbonization initiatives.
We also made an investment in the quarter in Invert Inc. Invert is a startup company that invests in and develops carbon sequestration projects in exchange for credits that it can sell on to those seeking to offset their emissions and achieve net zero objectives. These customers include mining companies among many others.
We think that this is an enormous market in the making and appreciate the royalty-like attributes of the business model that Invert has developed. We would also note that its project portfolio development strategy shares certain broader due diligence type considerations with our mining project generation business, and we look forward to working collaboratively with the team as it seeks to scale up its business.
It's still early days here, but generally speaking, we are looking at this investment as having characteristics akin to those we considered during the co-founding of both ARR and LRC. A few closing comments on our views regarding the current cyclical position of the resource markets. Call it a little pick-me-up moment, if you will, in what has been a trying couple of weeks for many resource investors, I'm sure.
We've been refreshing our views of late and focusing on the copper market as the usual bellwether. Last year around this time, we took the view that incentivization levels had been reached, putting us a third or so of the way from the bottom to the top. This meant that the next thing to expect will be a wave of growth investing announcements that would take several years to get to ground and ultimately result in oversupply projections, and then the next downturn, all as per usual stuff.
The growth investments have remained elusive a year later, however, with actual growth spending actually forecast to decline this year, which is particularly surprising since the demand side of the narrative continues to build around positive data related to global decarbonization initiative requirements.
We have some thoughts on why this might be and how these should inform our cyclical position views, which we will share at our upcoming Investor Day later in the month. Suffice it to say for now that it is difficult for us to believe that the market has peaked before the wave of investment and supply has even begun. We've said this before and still think it's true.
The longer it takes to get going, the more dramatic the response will have to be. The mining industry can't give the world the things it needs just by snapping its fingers. It is therefore hard not to be bullish about the next several years for our sector, at least once you cut through all of the short-term volatility and noise. Thank you. With that, we'll open up to questions.
As a reminder, to ask a question, please press Star followed by one on your telephone keypad. If your question has been answered or you wish to withdraw your question, press the pound key. Again, that's Star one to ask a question. Your first question comes from the line of Carey MacRury with Canaccord Genuity. Your line is now open.
Good morning, Brian.
Morning, Carey. You're always fast on the draw with that first question.
Obviously, you saw the Sandstorm BaseCore transaction. Clearly not a lot of companies in the base metal royalty space. Just wondering your thoughts on that. I assume you've had a look at that portfolio. I guess, does it change the competitive landscape for what, the stuff, the type of stuff you're looking at?
Yeah. I mean, I guess in some ways it confirms what everyone was expecting had to happen, and that's just broader consolidation, particularly amongst the, you know, on the precious metals sector. I think it's obviously, you know, very healthy to see. There's obviously. It's been too fragmented for the last several years.
I mean, obviously won't comment on the transaction directly, and quite honestly, we've been so busy getting ready for the quarter and our strategy session and upcoming Investor Day that, you know, we haven't really completed any kind of really serious analysis. You know, broadly speaking, I think it's a really great sign of the royalty space consolidating, and hopefully that has positive implications for just the competitive environment going forward.
Just maybe secondly on potash. I mean, it seems prices continue to strengthen. You know, obviously there's this lag that, you know, we're trying to catch up to, and then you've got, you know, the Mosaic K3 project coming online. This may be difficult to answer, but, you know, you did CAD 10 million in the quarter. Like, if prices sort of normalized here, just given the catch up and on the volumes, do you have a sense of what potash revenue number you generate on a go-forward basis?
Wow. A good one.
A tough one.
It's looking like a pretty strong year for sure. Look, it's. Again, the price that, you know, we received in Q1 was really the price that the market, or more or less what the market was pricing in the previous quarter. So, you know, next quarter and the one after, it'll be closer to what this past quarter has looked like, which obviously had more dramatic impact around Eastern European supply challenges.
I'm just astounded really that we're actually looking at a potash market this year that overall global demand will be significantly unmet. I mean, I haven't heard that kind of talk about any commodity in, you know, well over a decade now. So I mean, it's. Yeah, it's obviously shaping up to be a really strong year.
I mean, you still got weather factors and everything else to consider, which are always variable, and then there's the general seasonality of sales. Look, our operators can sell at very high prices whatever they can produce this year. That much is obvious. You know, with potash, sure, you can undersupply soil for a year or so, but it's still the nutrient is still gone.
It ultimately has to catch up at some point and has to be replenished. I think what you're seeing right now actually has implications for a bit of a longer peak pricing environment than we would have guessed even five or six months ago. We certainly didn't envision an undersupplied global market. I really hope it doesn't translate into food crisis type situations, but it's starting to look more and more like that.
You know, it's hard to feel good about circumstances that actually could see people suffering from famine. Overall, I guess we're pretty happy to be exposed to Canadian potash, and we think it has a real big role to play short, medium, and long term. More than it's ever. You know, more important than it's ever taken on in keeping the world fed. We love our potash royalties, if you haven't heard me say that at least 500 times in the past 10 years or seven years.
Thanks. I guess part of the question was, you know, based on the volumes you guys report, we haven't really seen. You know, volumes have ticked up a bit, but we've seen quarters with higher volumes historically. I guess, you know, I think we should expect maybe not only a price catch-up, but I think there's a bit of a volume pickup, particularly again, given Mosaic and, you know, sort of Nutrien increase in their guidance. Obviously, they don't give guidance by mine, but.
Yeah. Well, some of that.
We should get volume.
Yeah.
-volume increases.
Some of that's the lag, obviously. I mean, Mosaic just this quarter and probably closer to the end of the quarter, finished ramping up K3 to replace what was, you know, lost mid last year when K1 and K2 went down early. Latter part of last year, there were higher unscheduled or longer than planned maintenance weeks at Rocanville.
If Nutrien is going to deliver an extra 1 million tons this year over what they delivered last year, Rocanville obviously has to be a big part of that. I think that's a fair guess. We don't have perfect visibility on that. If everyone's going to run at the rates they're trying to run at to keep the world fed here, I'd be pretty positive on our volume side as well.
Thank you.
Next question comes from the line of Craig Hutchison with TD Securities. Your line is now open.
You touched on your investment in Invert Inc. I'm just curious whether you see this as a big growth driver for Altius. Just curious why it was acquired within Altius and maybe not in Altius Renewable Royalties Corp.
I guess. You know, where we see it right now, it's early days, but it has elements of thinking behind it that I would say would look like where we were thinking about ARR four or five years ago and a little bit more recently LRC. The similarity with LRC is that, you know, in this case, we're choosing basically to partner with a team that will lead and that we will, you know, be a supporting and contributing participant, we hope, going forward. It would be somewhere in between those two pieces.
As for why, you know, it's not in ARR. ARR is very focused on royalties for the renewable energy space without going off in different directions. Whereas minerals, really when you think about it all of its exposures are sustainability linked, and I don't know if you can epitomize that any more than through what we think is going to happen in the carbon market. It has those overlaps with, you know, what we're seeing in mining.
You know, there's linkages here to the price of carbon really will drive the price of the premium for high quality iron ore inputs and those sorts of things. It's that broader Altius natural resource sustainability focus made it a good fit for us. Again, I don't want to suggest that, you know, we're all in here at this point. It's a-
Right.
Really intriguing market, and we think we've partnered with a great group, and we're gonna follow it along and continue to learn and hopefully see it emerge as something that's an important part of our business in the fullness of time. But at this point it's, you know, it's a relatively early stage investment, and we'll see how it goes.
Okay. Maybe just another question from me. I know it's not a very material royalty for you guys, but just Gunnison. Any kind of sense in terms of how that ramp up is going and when that can become a more material royalty payer?
We don't have any more visibility really than, I guess, what the company has stated publicly. Obviously, they've had significant problems with just having flow rates through the well field materialize to plan. There's been some issues with, you know, with clogging and just flow rates. So I know they've been working very hard at finding solutions to that and just changing sort of the mix of fluids that they put in. But I don't really have much more to add. You know, and again, I know they're working hard at it, and
Right.
You know, we're watching it closely, but we don't have. I mean, we couldn't even really speak to it if we did, any better visibility than what the company itself is projecting. They are very focused on getting things sorted out there for sure.
Okay. Understood. Thanks, guys.
Thank you.
Again, if you wish to ask a question, please press star one on your telephone keypad. Sorry. We have a follow-up from Carey MacRury with Canaccord. Your line is now open.
Yeah, maybe just one follow-up. I guess with Fairfax converting the preferred, you know, obviously that saves up, you know, preferred dividends. Any thoughts of, you know, allocating that to the regular dividend or just thoughts on capital allocation here?
Certain thoughts on reallocating that money, but we have a board level sort of long-term strategy session coming up following our you know, later this week or at the end of this week. That's definitely a topic, the longer term capital allocation strategy and whether or not distribution finds its way into the hands of the common.
That'll certainly be part of it, but it'll be part of a much broader look at what we see in terms of growth, investing initiatives and returns of capital. We remain very committed to growing returns of capital. You'll have to stay tuned for the results from our long-term board level planning session. I don't want to pre-judge what the board decides there.
Fair enough. Thank you.
I'm not showing any further question at this time. I would now like to turn the call back to Flora Wood for closing remarks.
Thank you, Mary, and thank you to everybody who joined and for the questions. We have our AGM coming up on Friday, and the Investor Day that Brian alluded to is May 25th, so lots of opportunities to talk to you in the near future. Thanks for joining.
Thanks, everybody.
This concludes today's conference call. Thank you all for your participation. You may now disconnect.