Thank you for standing by, and welcome to the Altius Minerals Corporation Q2 2022 financial results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw the question, again, press star one. Thank you. I'd now like to turn the conference over to Flora Wood, Director, Investor Relations. Ms. Wood, please go ahead.
Thank you, Jack. Good morning, everyone, and welcome to our Q2 conference call. Yes, we did get the quarter out. Okay. Some of you that we saw on the weekend are wondering about that. Good to see everybody. Our press release and quarterly filings came out yesterday after the close and are available on the website. This event is being webcast live, and you'll be able to access a replay of the call along with the slides that have been added to altiusminerals.com. Brian Dalton, CEO, and Ben Lewis, CFO, are both speakers on the call, and then we'll open it up for questions. 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 will turn over to Ben to take us through the numbers.
Thank you, Flora. Good morning, everyone, and thank you for joining. Q2 attributable royalty revenue of CAD 28.6 million or CAD 0.61 per share was up 31% year- over- year. Year to date, royalty revenue of CAD 54.1 million or CAD 1.23 per share is up 36% from the same period in 2021. Both the quarter and the six-month periods represent revenue records, mainly thanks to higher realized commodity prices. Q2 adjusted EBITDA of CAD 24.4 million or CAD 0.52 per share was up 38% year- over- year. EBITDA margins of 85% are up from the 81% a year ago. The mineral royalties EBITDA margin was 91% for the quarter. For the year to date period, adjusted EBITDA of CAD 48 million is up 49% from its comparable period in 2021.
The increase follows the revenue trend, partially offset by an increase in public company-related expenses as Altius Renewable Royalties Corp. completed its IPO in March 2021. Q2 adjusted operating cash flow of CAD 16.6 million is up 186% year-over-year. On a year-to-date basis, adjusted operating cash flow of CAD 30.8 million is up 111%. Again, following the revenue trend and is reported net of CAD 9.9 million in cash taxes paid. Adjusted earnings for the quarter were CAD 10.6 million compared to CAD 9.5 million in the same quarter last year. Adjusted EPS was CAD 0.23 after factoring in losses on derivatives of CAD 1.9 million and foreign exchange revaluations of CAD 1.1 million.
The board of directors has declared a quarterly dividend of CAD 0.08 per share, which is a 14% increase over the previous quarterly dividend rate of CAD 0.07 per share. We last raised the dividend in August 2021 when we increased it from CAD 0.05 to CAD 0.07 per share. Within a little over a 12-month period, we've increased it by 60%. The dividend will be paid to shareholders of record on August 31 with a payment date of September 15. Now to the balance sheet. On April 14, Fairfax exercised their 6.7 million warrants with the proceeds used to redeem CAD 100 million in 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 distributions.
We funded another investment of $10 million into Inventus Mining Corp., following previous investments made in Q1 of this year and Q4 2021. There were scheduled debt repayments of CAD 2 million, and we paid CAD 3.2 million in dividends during the quarter. We purchased and canceled an additional 100,000 shares at a cost of CAD 1.9 million during the quarter under our normal course issuer bid, which we hope to renew for another year when we reach the renewal anniversary date. During the quarter, we drew down CAD 10 million on our revolver facility to acquire other investments. We ended the quarter with CAD 28 million in cash, excluding the cash held by ARR, and CAD 96 million in additional liquidity on our revolver.
We also continue to see the revenue ramp up at ARR and are pleased with the second quarter of positive cash flow for ARR's underlying GBR joint venture, joint venture business. Revenue growth is expected to continue in the second half of this year as more renewable energy projects reach commercial operations. In June and July, GBR completed two new royalty investments, including a $32.5 million investment in Blue Star Energy Capital and a $40 million investment agreement into Hodson Energy, LLC subsequent to the quarter. With that, I'll turn it over to Brian to talk about the environment and the outlook.
Thank you, Ben Lewis. Thank you, Flora Wood. Good morning, everyone. Our business has continued to perform well over the first half of the year in spite of a very unsettled geopolitical and macroeconomic backdrop. Our position as an inflation hedge of sorts continues, given our lack of exposure to the higher operating and capital costs being widely experienced across our sector exposures. In other words, while operating margins have compressed for many recently, our top-line revenue-based exposures have been significantly less impacted. The war in Ukraine has resulted in considerable disruption to global supply for a host of the commodities that we have royalty exposure to, with the two we are perhaps watching most closely being potash fertilizers and iron ore pellets.
Given the high percentage concentration of pre-war production of these from Russia, Belarus, and Ukraine, it is an obvious open question as to when and how global trade flows might adjust to bring these currently constrained supply sources back into the global mix. It does feel quite certain that the relative value of sources of these materials in places such as Saskatchewan Potash Basin and the Labrador Trough Iron Ore District has been clearly enhanced in the market. We therefore see benefits not just for near-term price support due to the current supply constraints, but also in the form of dramatic shifts in the cost and availability of capital to bring on new global supplies in the future. This has long-term implications that heavily favor growth of market share from the production regions that we are positioned in.
The evidence of this long-term benefit is already manifesting as both of our potash operators, Nutrien and Mosaic, have made recent capital investment commitments to activate all available production capacity from their mines. In Labrador, we are seeing a renewed commitment by Rio Tinto to its IOC iron ore mining complex in the form of higher sustaining and growth capital spending after a prior period of underinvestment. This represents a significant change in direction from a few years ago when Rio was reportedly looking to divest the asset. As our exposure to IOC is through LIORC, which is both a royalty holder and equity owner, the equation is a bit more two-sided than, say, for potash, at least in the short term.
The royalty benefits fully from any improved production that results from the capital spending, but dividends flowing through from the equity component will be limited as they compete directly with the capital spending amounts. As long-term investors, we see near-term equity-based dividend constraints as opportunity, however, and added to our position in LIORC during the quarter in the belief that the operations will ultimately be stronger and more durable a few years out from now. We are also keenly anticipating Champion's updated feasibility results from the Kami project. They announced a slight delay to the publishing of these results into next year as they await detailed metallurgical confirmation that the project can deliver a direct reduction pellet feed-grade material and support the relatively outsized growth of electric arc-based steelmaking capacity. This is being invested in throughout the world as part of decarbonization commitments.
This transition to EAF from BF or blast furnace steelmaking is quite real, with serious amounts of capital being invested in, and in our opinion, it is a very undertold story by those who comment on iron ore, metallurgical coal, and steelmaking trends. Iron ore is not a single linked market anymore, but is instead well on its way to structural segmentation by relative product quality and end user technology preferences. In base metals, we saw the closure of the Triple Seven mine during the quarter as per plan and expectation. We acquired this royalty through a merger with Callinan Royalties back in 2015, and it has worked well despite seeming a bit of an anomaly for us, given our focus on long life assets.
That deal ultimately shored up our balance sheet at a time of wonderful opportunity and allowed us to acquire the Chapada copper stream the following year. It also brought us the royalty on the Silicon project in Nevada that AngloGold Ashanti has gone on to make a major new gold discovery on. More on that in a bit. Lundin continued to report excellent results from the new Saúva discovery at Chapada, with the footprint of the mineralization further expanded. It also announced that it will publish a maiden resource for the discovery early next year, and most importantly for us perhaps, that it will now begin to consider the discovery as part of its ongoing expansion plans.
The new deposit is showing signs of being considerably higher grade than the current material being mined at Chapada, so there are obvious implications for copper production levels as Saúva moves into mine plan sooner. This is in addition to the overall mine life extension implications. We'd rank this news as well in the category of stories that are being underappreciated currently. Adventus and Salazar continue to make solid progress in advancing Curipamba to a construction decision, with positive news coming in throughout the quarter regarding the securing of project finance and social and environmental approvals. Lithium Royalty Corp., where we're an approximately 12% shareholder, made another advanced stage royalty acquisition relating to the Mariana project in Argentina. This project recently began construction by Ganfeng Lithium as part of a planned $600 million development.
Altius has elected to exercise its 10% participation rights for the total 0.5% NSR royalty acquisition. LRC, now with more than 20 royalties in its portfolio, including several at either the operating or construction stage, also continues to evaluate strategic alternatives, including an IPO or corporate transaction, and has recently engaged advisors in Canada and the US to support this effort. Lithium prices have been holding at strong levels despite the broader market turmoil as EV adoption continues at pace globally and as renewable energy-based battery storage looks set to dramatically accelerate. Our electrical coal royalties from the Genesee Mine in Alberta continue to come in higher than we might have expected a year or two ago on the strength of very strong electricity demand in Alberta and high plant utilization rates.
These royalties clearly remain on a path to phase out, however, with the operator remaining committed to a gas conversion investment. We saw this coming and acted proactively, however, with our creation of Altius Renewable Royalties. There, we are seeing an excellent build-up in our portfolio of wind, solar, and increasingly storage-based royalties. Frank and the team in New Hampshire have secured deals in the first half of the year totaling more than $70 million, and its pipeline of opportunities continues to expand rapidly as its royalty financing gains sector adoption as an attractive and partner-like alternative source of capital. The passing over the weekend of new legislation in the US that provides strong commitments and certainty to the renewable sector is expected to add even further tailwinds for AR.
Finally, as the year progresses, and considering lag effects, ARR expects to benefit from increasing market prices for electricity and the royalties it holds that have maintained components of market pricing exposure. In project generation, the value of our equity holdings declined in line with junior markets generally during the quarter. However, our portfolio of companies have continued to execute well. Funded exploration programs across our equity and royalty holdings are on track to result in record drilling meterage this year, numbering in the hundreds of kilometers and providing incredible free option value for Altius shareholders. As an example, AbraSilver announced a new high-grade discovery nearby to its existing Diablillos deposit resource that looks quite exciting. AngloGold also continued with its very aggressive drilling campaign across multiple discoveries on the Silicon project.
For Silicon Central, a pre-feasibility study is underway in addition to further delineation and expansion-focused drilling. At Merlin, located immediately south of Silicon Central, a first resource is expected in early 2023. We noted with interest these past few months as consolidation and M&A activity among the precious metals royalty and streaming companies began to really ramp up. Of particular note was the takeover of Great Bear Royalties and the acquisition of an existing royalty on the Cortez project in Nevada. Both of these have elements that provide comparable benchmarks for the potential value of our Silicon royalty as we continue to explore strategic alternatives there. With that, I will turn over to questions.
At this time, if you'd like to ask a question, please press star one. Craig Hutchison with TD Securities, your line is open.
Hi. Good morning, guys. The first question's on the potash segment. Obviously, it's encouraging to see that Esterhazy's K3 mine is now operating at a run rate of 5.5 million tons at the end of the first quarter. With the plans to optimize the mining complex and bring on an additional 1 million tons of production capacity over the next year or so, would Altius have full exposure over those incremental tons? i.e., can we assume that there's a constant unitization ownership percentage for that additional 1 million tons? Thanks.
Yes, Craig. We have all of that production is from the K3 area, so it would be, you know, basically at the same royalty rate as we've been receiving since K1 and K2 went down mid last year. The royalty rate that we would have held on units one and two and on unit three are actually all fairly similar. It should be fairly straight math.
Okay, great. At Genesee, obviously, it's encouraging to see the strong revenues for the first half of this year, and it looks like we're setting up for a very strong Q3. You touched on it in your opening commentary, but any insight you could provide just in terms of the transition from coal to gas as we move into 2023, and how you think about the revenue outlook for the next year or two would be appreciated.
It's not that easy actually to get that information. I did note that, you know, some of that capital spending looks like it was deferred in the current quarter. I don't know if that was market-based and not wanting to interrupt such, you know, a strong market backdrop or if it was, you know, due to supplies or just other more practical constraints. Don't really have that information, other than what, you know, we can all read from Capital Power's published remarks. Again, we're looking at it as over the next couple of years, things fading down.
Yeah. Maybe last question from me. At your Investor Day and earlier in commentary, you talked about the potential divestiture of your precious metals business. Have those conversations increased over the last quarter or so?
Thus far, you know, we've basically put it out there that we're open to concepts and ideas and we'll be. You know, we're looking at that very broadly, whether it be, you know, straight up sale, you know, primarily we're talking about the silicon royalty here or, you know, some type of corporate transaction, even, you know, potential royalty swaps, for non-precious metal royalties. It's still relatively early stage, but we've had conversations, I suppose, with all of the usual suspects, and there does seem to be a lot of appetite. Obviously the project still early stage, and there's gonna be a lot of key data points over the next number of months, there's no real urgency here. We are, you know, opening the door and wanting to hear of any interesting ideas that people might have.
You know, as we get into later part of the year and early next year, we'll ramp that process up a little bit and probably formalize it. For now, it's more conversational.
Perfect. Thanks for taking my questions.
Thank you.
Brian MacArthur with Raymond James, your line is open.
Good morning, and thanks for taking my question. It also has to do with potash, but more to the Nutrien announcement. Again, they've announced a fairly big expansion, but a number of those tons I think are at like Lanigan and Allan and Cory and Vanscoy. Can you just go through again, roughly how that would ramp up? Because I think there's different. If I remember correctly, there's different royalty percentages on each of those mines. And I guess the second question is, I assume they would ramp Rocanville, you know, it go up to its capacity first. So in the near term, you continue to get similar royalties. Any help on that would be appreciated.
I guess the best resource for that would be in our investor day materials, where we kinda went through what the current production level is relative to nameplate capacities. I mean, that's not even gonna be a perfect guide, but it's something that, you know, just gives you an indication of where the bigger picture infrastructure at the individual mines has capacity of mining machines. Those kinds of things are added. You're absolutely correct. You know, our royalty rates vary by operation. You know, again, I'd have to go back and look. If I recall, if they go to the full extent or if they complete the full expansion, it feels like it will be relatively proportional, you know, against our recent production levels. The timing of that could be different.
For example, we have relatively low exposure to the Vanscoy mine, which was the one that came in from the merger with Agrium. To the extent that first production is ramped there, you wouldn't see that much benefit until it got around to the, you know, the ones where we have higher exposure. Nutrien hasn't actually provided that guidance, you know, on a mine-by-mine basis. Collectively, if all of the expansion that's been signaled occurs, yeah, we'd have a relatively proportionate impact in terms of production volumes.
Great. Thanks. That helped. My second question-
Yeah, to point you right back to the investor day, we did go quite extensive in terms of just, you know, here's current production, here's nameplates, and it's a guide, but not a perfect one.
Yeah. No, I'm just focusing more on the relative rates from the different mines, but that's very helpful. Vanscoy is the one that you're really not going to get a whole lot on is the bottom line.
Lanigan is a relatively small exposure for us, whereas, you know, Rocanville, Esterhazy, which are the, I guess, the two top mines in the district we do have very significant exposures to. We do in the investor day materials, we do actually publish the relative royalty rates as well.
Great. Thanks very much. I'll check that. My second question just goes to the Invert loan receivable. It looks like the Invert loan receivable, which your first investment there, it's in current assets. So I'm kind of curious, does that mean something will happen in twelve months on that loan receivable with Invert, or is that just accounting and I don't need to worry about it? I was just surprised it was in current assets above the long-term assets.
Over to you, Ben.
I think we look at that, and if we expect it to mature within a year and it's convertible, there's a clause where we can convert to shares upon an IPO. The estimate right now is that that would occur within a year, but obviously there's lots of factors that could affect that. That's why it was grouped with current.
Thanks very much for answering my question.
Thanks, Brian.
Carey MacRury with Canaccord Genuity, your line is open.
Hey, good morning, everyone. Maybe just back on the potash side, just you had a record first half, record Q2. Prices have come up a little bit, but looking at the, you know, the volume guidance from Nutrien and Mosaic, you know, it looks like you really could again have maybe a similar second half or even stronger. Is there anything I'm missing on that, or is that in line with what you're expecting?
Yeah, all the usual caveats, I guess. I mean, Midwest US prices have really not moderated that much at all. To the extent that production is loaded there, you know, it will do better to the extent that, you know, in Brazil, things have moderated more. Really comes down to where product gets placed. But, you know, generally speaking, particularly in Canadian dollar terms, prices are down a little bit, but not that much quarter-over-quarter. As for volume, always a harder call.
We know from the operators that sales were a little below expectations, despite the fact that you've got a market that's constrained by supply, but it had more to do with a late planting season in the U.S., and the operators are commenting that they expect that gets caught up in the back half of the year. It does seem like from a volume perspective, it's probably going to be a back end heavy production year. Again, a lot of caveats here, but then you've got to factor in the one quarter lag roughly as well. Potash still looking pretty good.
On Triple Seven, obviously, it's come to an end, but just given the timing between you get paid and when the mine produced, should we be expecting something in Q3 like a residual payment, or is it pretty much done from your perspective at this point?
I think if I recall correctly, there are still residual payments that would result to just, you know, product leaving when product leaves site and those kinds of things. What we know is that mining and new extraction has ended, but I still think there's material that needs to be processed, sold and royalties calculated on. You know, I don't think it's. You don't expect the normal or critical level of revenue in the next couple of quarters, but you'll see something.
Maybe one last one for me. Obviously a big pullback in the mining space, particularly in juniors. You know, do you think these conditions open up new opportunities for you? I know you guys like to invest counter-cyclically. Just wonder what your thoughts are on the market that we're in right now.
On the juniors, because the market response is so immediate that, you know, there are things we're certainly looking at, and maybe it involves adding to existing positions that are pulled back on stories that we really like. You know, bigger picture, royalty at the royalty level. There's other sources of capital have certainly retreated, and I think that creates some opportunity. Now, whether that's met by a similar retreat from operators and developers and even trying to access markets, you know, remains to be seen. You know, we're certainly seeing some opportunity there.
The other thing, again, we bought some Labrador shares during the quarter, Labrador Iron Ore Royalty Corporation, because there was a case where, you know, there's a difference between somebody selling an asset directly or an interest in an asset directly, and their price moving with the market versus, say, Labrador, where the market every day decides on a new price, and we can just compare it against our long-term view of the value and make decisions like that. So there's again little differences there between h long it takes for owners of assets or those who might write royalties to adjust their sense of value or, you know, decide they've got to go irrespective of where markets are versus that wonderful machine called the market making big mistakes. All good.
That's great. Thanks, Brian.
Cheers.
Orest Wowkodaw with Scotiabank. Your line is open.
Hi. Good morning. A lot of my question's been answered, but I was wondering about Kami specifically in the sense that Champion Iron is obviously ramping up their phase II at Bloom Lake and starting to look at, I guess, new growth opportunities. I, you know, from my perspective, they're trying to kind of weigh the pluses and minuses of potentially developing Kami versus potentially doing a phase III expansion at Bloom Lake. Given your 3% gross revenue royalty on Kami, I mean, from my perspective, that seems like a fairly, well, obviously very valuable royalty for you, but a fairly punitive royalty for them in terms of on the asset from a burden perspective. I'm wondering if there's any room for negotiation to perhaps lower the 3% in order to help move that project forward.
There haven't been any discussions around adjusting royalty rates, and that's something that we're very open to. There's just so many other factors. Just the size of the order and relative. All kinds of things that are of how Champion makes its decision going forward. I mean, if you listen to David and his view, the demand that is coming to market for DRP, but I think he would argue that it's an all of the above. You know, all of these are big, big, big. But to your direct question, there have been none around adjusting royalty rates.
Okay. Thank you.
Cheers.
Again, if you'd like to ask a question, please press star one on your telephone keypad. We'll pause for a moment to see if there's any remaining questions.
Thank you, everyone. We will see you next quarter. Flora, did you have any closing remarks?
No, Brian. That sounds good to me.
Okay. Thanks, everyone. Back to work.
Okay. Thank you.
Thank you.
This concludes the Altius Minerals Corporation Q2 2022 financial results call. We thank you for your participation. You may now disconnect.