Good morning, ladies and gentlemen, and welcome to the Altius Minerals Q3 2022 financial results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require any assistance, please press star zero for the operator. This call is being recorded on November 10th, 2022 . I would now like to turn the conference over to Ms. Flora Wood. Please go ahead.
Thank you, Sergio. Good morning, everyone, and welcome to our Q3 conference call webcast. 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 two hours after it finishes, along with the presentation slides on the website at altiusminerals.com. Brian Dalton, CEO, and Ben Lewis, CFO, are both speakers on the call, and then we'll open it up for questions. You'll see the forward-looking statement on slide two. That applies to everything we say, both in the 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. Q3 attributable royalty revenue of CAD 26.2 million or CAD 0.55 per share was up 26% year-over-year, whereas year-to-date royalty revenue of CAD 80.3 million or CAD 1.78 per share is up 33% from the same period in 2021. With 9-month revenue currently at CAD 80.3 million, we are well on track to exceed 2021's annual revenue of CAD 83.9 million and setting a new record for the corporation. Q3 adjusted EBITDA of CAD 23.7 million or CAD 0.50 per share was up 40% quarter-over-quarter. The mineral royalties EBITDA margin increased to 87% for the quarter as fixed costs remained relatively stable against the higher revenues.
For the year-to-date period, adjusted EBITDA of CAD 71.7 million is up 46% from its comparable period in 2021. Q3 adjusted operating cash flow was CAD 25.9 million, up 37% quarter-over-quarter. On a year-to-date basis, adjusted operating cash flow of CAD 56.7 million, net of CAD 7 million in cash taxes paid, is up 69%, again, driven by higher revenue margin growth. We continue to see accelerated revenue ramp-up at ARR through its 50% owned GBR joint venture. Notably, ARR achieved the milestone of first positive cash flow and operating profitability during the quarter. GBR also increased its 2022 annual revenue guidance from $6.5-$7 million from the previously indicated $4.5-$5.5 million.
Brian will speak more on the strong progress at ARR, and I further encourage you to review its recently published quarterly materials and the investor conference call remarks. Now to the balance sheet and capital allocation. We successfully deployed CAD 18.2 million during the quarter in new investments in cash flowing and advanced stage royalties as we took advantage of weaker market sentiment conditions. This consisted of CAD 15.9 million to purchase an additional 550,000 shares in Labrador Iron Ore Royalty Corporation, which is a pass-through vehicle for royalties and equity dividends from the IOC iron ore mine. We also funded CAD 2.3 million in direct royalty acquisitions under our 10% co-participation rights with Lithium Royalty Corp.
ARR also participated for its 50% joint venture share of a new $40 million royalty investment in renewable energy developer Hudson Energy. The corporation also paid an CAD 0.08 per share dividend during the quarter, which was a 14% increase from the prior quarterly rate. The board of directors also declared a Q4 dividend at CAD 0.08 per share, which will be paid to shareholders of record on November thirtieth with a payment date of December fifteenth. We also purchased and canceled an additional hundred and 58,000 shares under our normal course issuer bid for total cost of CAD 2.7 million. We renewed the NCIB this past August, and that will run until August 21, 2023. During the quarter, we also made scheduled debt repayments of CAD 2 million on our term debt.
I'll take a moment to provide a little more color on our current debt level, as this is obviously becoming more topical amongst investors given the current interest rate environment. We carry term debt of CAD 42 million at an interest rate on that debt is locked in at 4.3% until it matures in 2025. In addition, we have CAD 82 million in revolving debt, which has a variable interest rate that is currently at approximately 6.3%. While we don't consider our leverage level to be onerous relative to our total balance sheet, we are obviously monitoring rates closely and may consider shifting our capital allocation priorities towards debt reduction in upcoming periods. This would allow us to avoid higher interest costs, and quite frankly, we'd also avoid any unnecessary distractions relating to debt market volatility and possible increasing restrictiveness amongst lenders generally.
This decision will, of course, be weighed on an ongoing basis within the context of managing our liquidity, since we also have been finding a more attractive investment environment lately, as evidenced by the recent growth investments I already spoke about. Our current liquidity consists of CAD 23 million in cash at the end of Q3, and we have CAD 93 million in unused revolver. ARR at quarter end had cash liquidity of $55 million. With that, I'll turn it over to Brian to talk about the environment and the outlook.
Thank you, Ben. Thank you, Flora. Good morning, everyone. Our royalties continue to perform strongly within the current inflationary environment for sector capital and operating costs. These are pressuring operating level margins and increasing cost curve and incentive price requirements for most commodities. Top line nature of our royalties, as well as the diversity that has been built into our portfolio, is serving the business well, and our revenue is tracking around a third higher than at this time last year. That said, there were a number of somewhat contrasting signals and developments from within the portfolio. Thankfully, most of these were balanced to the positive. Starting with electrification-focused metals, 777 has recently wrapped up production, while a sizable new high-grade copper discovery is taking shape at Chapada.
There, a maiden resource is expected in Q1 2023 that Lundin Mining has indicated is now being considered within the context of its expansion plans for the operation. Adventus continues to be on track with its plan to begin construction of Curipamba next year, and this morning announced that it had successfully negotiated an investment stability agreement with the Government of Ecuador. Happy to take this opportunity to give a shout-out to the whole Adventus team for the heads-down progress it is making in chopping down hurdles and muting its naysayers. LRC has several projects advancing to production as incentivization conditions remain very strong for lithium, representing a bit of a broader sector outlier or perhaps a harbinger. We also understand that the company has been meeting with good interest levels as it considers its strategic alternatives.
Production is improving at IOC as some previously deferred and much-needed sustaining and growth capital is once again being injected into the operation. Quality premiums remain strong, but benchmark iron ore prices have come off as China's steel demand has slipped. Champion remains on track for releasing its DR pellet feed study results for Kami in half one 2023. Potash prices continue robust, particularly in Canadian dollar terms, although they have consolidated some of the initial steep run-up that came as a result of the Russian and Belarusian supply shock early in the year. That shock also seems to have caused buyers to overstock early ahead of the Belarus sanction constraints, and then in turn to buy less later in the year, which negatively impacted half two sales volumes by our operators.
This has caused a bit of market consternation, but it feels a bit foolishly short-term focused to us, to be honest. Our operators continue to note that the market remains structurally short its overall supply requirements, and they continue to invest in increasing capacity to whatever extent they can muster as the world faces legitimate famine threats now. They also note inventories of potash in many crops to be quite low in certain regions and soil nutrient levels relatively depleted. While strong crop prices continue to provide incentivization for farmers to plant more and try to increase yields going into next year. Medium and long term, we believe that Canadian-based potash production is poised for significant market share growth as geopolitical risk premiums in the major competing regions continue to increase and drive up Canadian-based relative incentivization conditions and advantages.
The end is now in sight for our coal royalties as Capital Power works to complete gas-based repowering at Genesee. We did, however, have positive news in the form of a Supreme Court of Canada ruling that we believe considerably improves the strength of our de facto expropriation claim against the Alberta and Canadian governments. Altius Renewable Royalties, through its 50% joint venture interest in GBR, continues to quickly grow in terms of investment deployment and adoption of its royalty financing structures for the renewable sector. It is also benefiting from increasing power prices that contributed to GBR recently increasing its full-year revenue guidance and announcing achievement of the milestone of reaching positive cash flow. Three additional royalty projects currently in construction and a big increase in the size of its development royalty portfolio came as a result of an acquisition by Enbridge of one of its investee companies.
Its embedded growth trajectory looks solid for the foreseeable future. Importantly, we believe this growth trajectory will more than offset coal revenue declines in the near term. This was one of the key intended outcomes when we originated the business together with the GBR team. Back then, we called it Project Lemonade, and it has played out well. AngloGold Ashanti's enthusiasm for the Silicon project seems to be still building, with recent public musings by the company suggesting that the potential resource size is continuing to meaningfully expand. It also acquired a large contiguous land package that is located along the southern boundary of the Silicon project, and likely hosts the extension of the Merlin deposit discovery, for which a maiden resource announcement is expected early next year. Turning now to update our bigger picture cyclical outlook.
We've been asked by shareholders over the past few months if we think that the peak of the commodity cycle has now passed. This is a fair question. We marked the cyclical bottom as early 2016, and prices have been mostly higher for the seven years since, especially if the period of deepest COVID fears can be disregarded. Now, of course, there is concern around recessions and what these might do to near-term supply-demand balances. A reasonable question indeed. Our argument against the cycle having peaked, however, is a fairly simple one. Our take of history says that a commodity cycle rolls over following a period of price-incentivized supply growth. If we look at copper as a proxy, it is now more than 10 years and counting since the sector meaningfully invested in either replenishment or growth.
We almost got there late last year in terms of incentivization conditions, but since then, a combination of lower prices and increasing CapEx and operating costs have actually pushed the bar higher. We think current short-term sentiment is deeply disconnected from fundamental long-term reality. This is making us feel even more generally bullish about our various forms of long-term positioning and optionality. That comment will no doubt invite the question of whether or not our investment appetite has shifted any, despite our belief that we remain in broader pro-cyclical conditions. The answer is yes, somewhat. While this is not a cyclical downturn characterized by looming oversupply pressures and distressed balance sheets, such as, say, during 2013-2016 period, operating margins have deteriorated quickly and competing sources of capital are acting gun-shy.
We note that in past such intra-cyclical windows, examples being global financial crisis, trade wars, and the pandemic panic period, the market, in particular, offered up select opportunities to position in royalty-based equities at less than our view of the long-term value of their underlying royalties. Yes, we are running sharp pencils again these days and making some investments. Thus far, we have added to our ownership in Labrador Iron Ore Royalty Corporation for direct indirect royalty exposure to the IOC mines and co-participated alongside LRC in direct royalty purchases. We are also looking at other select situations where we think the market is mispricing assets by dwelling on short-term noise and underweighting long-term fundamental value. Fingers crossed for things to stay gloomy for a while. By that, most of you know we mean more attractive. Either way it goes over the coming periods, we like our positioning.
That concludes my remarks. Are there any questions? Thank you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one from your touch-tone phone. You will see a three-tone prompt acknowledging your request, and your questions will be put in the order they are received. Should you wish to withdraw from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. First question comes from Craig Hutchison from TD Securities. Please go ahead.
Hi, good morning, guys. Brian, you touched on your remarks, we've seen obviously a tremendous amount of inflationary pressure, and that's squeezed the margins of a number of producers. In some cases, you know, balance sheets have actually deteriorated quite a bit, which creates an opportunity for you guys. Are you seeing kinda larger opportunities right now, or is it more smaller size in terms of new royalties? And I guess maybe how do you guys weigh those opportunities versus, I think, Ben's comments that your sort of shift to capital allocation is towards debt reduction sort of over the near term? Thanks.
Yeah, Craig, I'd say, you know, we've been dipping our toe. Certainly, you know, and what we've been finding so far is situations where public markets, you know, are knocking down prices relative to our views of valuations. It doesn't feel yet like, you know, it's gotten to say more, you know, private or direct negotiation type valuations, and there's still, I think, underlying long-term views around asset values amongst those that hold. Some, you know, and here I'm talking about more direct royalty purchase opportunities. You know, that doesn't feel that distressed at this point. You know, again, the difference between here and say 2014-2016, I mean, yes, there's margin compression and balance sheet deterioration, but you got to remember back then there was balance sheet decimation underway.
You know, generally speaking, there's a better balance sheet out there. You know, maybe it gets deeper. I kinda hope it does, but for now, we're just taking advantage of the more, you know, sort of public markets-based dislocations that we're seeing. You know, we're ready for whatever.
Okay, great. Just with respect to Silicon, you guys have mentioned in the past the potential to potentially monetize that or do a swap for a base metal royalty. I know that they're coming out with pre-feasibility study early next year. Any further thoughts on that? Is the timing more post the pre-feasibility study, or could it be something we could see before that?
There's certainly lots of interest in the Silicon royalty. I mean, obviously, world-class gold discoveries, particularly in Nevada, that have royalties on them, don't come along every day. I think what you're, you know, your comment is probably right. I mean, it feels like we're gonna be looking at like there's some big events early in the year. You got the PFS on the Silicon deposit. There may even be some resource update from there and maiden resources to come from Merlin. You know, we're pretty close now to some, you know, fairly big updates. We'll see how that plays out and then look at where we're at.
Okay. Great, guys. Thanks.
Thank you.
Thank you. Your next question comes from Brian MacArthur from Raymond James. Please go ahead.
Good morning. My question relates to the potash business. Can you just remind us, when you get paid on the royalty, is it based on sales versus production or is it when it's actually shipped? The reason I go into this is obviously, as you mentioned, pricing's rolling over a little bit but still strong, but volumes are being rebalanced as we defer stuff. I'm just trying to sort of get a feel for the volumes that are gonna flow through your business over the next couple of quarters.
The royalties are based on FOB Saskatchewan. More production, I'd say, than sales, because you got that lag from, obviously, from Saskatchewan to wherever the product ends up. You know, that kind of explains some of the pricing gaps we saw on the rising market. You know, we'll see it in both directions, obviously. You got that. Typically, just look at that one quarter gap if you're trying to figure out, you know, typically, and this shifts around a little bit. That statement is probably most true when the bulk of sales are, Midwest pricing basis. The more you get into sales into Asia or Brazil, where you get into more contracted prices, that can alter.
As a very, very rough rule of thumb, if you look at our average pricing for the quarter, previously, you'll have a pretty good clue as to what we're gonna receive and report in the following quarter.
Okay, great. Thanks. My second question has to do with the coal, and I'm not sure what you can say about it. What actually happens next? Are there any time data points on this as you, I guess I'm not a lawyer, but reinstate your appeal or however I should word it?
Yeah. We had the original negative ruling, which dismissed our claim, which we appealed, and the dismissal was upheld on appeal with, you know, specific reasoning being that, under that court's interpretation of the law and the old case law, that we couldn't make the case that there'd been an actual taking. The Supreme Court of Canada decision that came out recently clarified that point, you know, as to what constituted a taking. It basically, what it said is that, look, if government's gaining an advantage that's effectively, you know, that meets that part of the test as far as the taking goes. We've appealed that latest dismissal.
Obviously with this new Supreme Court case law, we're feeling pretty optimistic that we'll have that turned over. I don't know, Flora, if you've got a better handle on timing for when that next appeal might get heard.
I don't yet, but I'll follow that up with our lawyers, and then I'll be able to answer that, Brian.
Sounds good. Yeah. No, I don't know specifically when that. I don't think a date's been set, put it that way.
Mm-hmm.
Great. Thanks very much for answering my question.
Cheers.
Thank you. As a reminder, should you have a question, please press star followed by the number one. There are no further questions at this time. Please proceed.
Sergio, I just maybe give it one more minute because I know we're sandwiched in between other calls, and I know at least one party who's trying to get in. If we just give it another 30 seconds or so.
Yes, sure. Okay. Yeah, we have another question from Paul Scurfield from Scotiabank. Please go ahead.
Hi, good morning.
Hey, Paul.
Hi, hope everyone's doing well. My question revolves more around strategy. We saw another M&A transaction this morning, this one on the royalty space, on the precious side. I'm just wondering, you know, how you think about that philosophically and whether scaling up in this market makes strategic sense.
We don't view scaling up for the sake of it to do much. I mean, really, if you're talking. We've done lots of M&A in our history, and obviously, we like it better in countercyclical type conditions. Look, I mean, really what it falls down to is, does the M&A add value? I mean, is it dilutive, not just to short-term metrics, but more importantly to quality. For us, I think increasingly it's a hurdle around just how much embedded optionality we feel we have right now. You know, when you do a transaction like that, yes, you're taking on assets, but you're also diluting your own.
Yeah, again, like, as a growth strategy, sure, there are situations we've used them in the past, and we wouldn't be shy about doing it again. Right now, I think we just like what's building organically within the company. We also like, you know, these more sort of smaller kind of add-on opportunistic pieces. We're, you know, not in that camp of, oh, we gotta scale up to be relevant at any cost. We're not gonna dilute, you know, what's in this business now and what we think is going to emerge from it naturally, for the sake of that. I think that's a fool's game.
Thank you. Maybe just as a follow-up, I mean, in the quarter, you further increased your ownership in Labrador Iron Ore Royalty Corporation.
Yep.
Should we think about you know, I'm just trying to think about, the comments earlier about potentially looking to delever the balance sheet, just given the context of what's happening with interest rates in the debt markets. Should we think about your stake in LIF as basically a funding option to accelerate that kind of deleveraging?
You know, for that holding specifically, I would say no. I mean, we looked at that incremental acquisition as being, you know, long-term, and not just, you know, it's not a trading position where we'd use. Look, if we really felt the need to do something dramatic with our balance sheet, it's always available to us, and we've always viewed that LIF holding as being that. But it's intrinsically it is a long-term, you know, hold and position for us. I mean, you'll recall that back in 2020, sort of when COVID fears were at their most and, you know, none of us really knew if any mine was gonna be operating. I think we came right on the heels of us having made a pretty significant investment in ARR.
We were fairly constrained. We actually made the choice then to sell some Labrador and put more cash on our balance sheet. It wasn't a pleasant decision, but, you know, it's sort of in the interest of keeping our balance sheets, fortress-like, if you will. We made that decision. The option is always there, but it's, you know, again, the new stock or the new shares we've added in Labrador are, meant to be a long-term hold. The comment earlier about deleveraging on the balance sheet is, you know, we've. It's just a noisier environment to be in debt right now and, you know, it's increasing investor questions.
Obviously, as we just always continue to look at what our capital allocation priorities should be, I would say that debt reduction going forward has moved up on the list just because it's noisy and distracting these days. We're not in a situation where, you know, say, 2020, where we've got to protect our assets here from our debt on our balance sheet. It's nothing like that.
Okay. Appreciate the color. Thank you.
Sure.
Thank you. That makes an area. A reminder, should you have a question, please press star followed by the number one. That is good. There are no further questions at this time. You may proceed.
Thank you, Sergio, and thank you everybody for listening to the call. I know it's a busy morning today, and we'll look forward to speaking to you again at your end.
Thanks, everybody.
Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.