Good day and thank you for standing by. Welcome to the Altea's Q2 twenty twenty one Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Laura Wood, Director of Investor Relations.
Please go ahead.
Thank you, Carol. Good morning, everyone, and thank you for joining our q two conference call. Our press release and quarterly filings were released yesterday after the close and are posted to 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, will both be speakers on the call, and we'll then open it up for questions.
The forward looking statement on Slide two applies to everything we say in our formal remarks and during the Q and A session. And I'll remind you that if you have any questions, you'll have to dial into the conference call as the webcast is audio only. And 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. Q2 royalty revenue of $21,900,000 or $0.53 per share was up 23% from Q1 and just under our $22,000,000 record quarter in 2020. Q2 EBITDA was $17,700,000 or $0.43 per share compared to $14,600,000 last quarter consistent with the change in revenue. The EBITDA margin was 81% this quarter compared to 82% last quarter. G and A expenditures of $2,000,000 in Q2 are consistent with expenditures of $1,900,000 in Q1.
Adjusted operating cash flow was $5,800,000 or $0.14 per share and is down 34% from Q1 levels and down 56% from its comparable quarter last year, reflecting the timing of corporate tax installment payments. As the corporations were granted flexibility in deferring payments last year due to COVID. In addition, changes in working capital impacted cash flows this quarter, and we expect that to reverse in future periods. The quarterly net earnings of $14,500,000 or $0.38 per share include $0.13 in noncash adjustment items that are identified in the waterfall table and slide that you can find on our website, leading to adjusted net earnings of 25¢ per share. The main adjustment item is a 16¢ gain from reclassifying the investment in Adventus to mining and other investments rather than previously being equity accounted for given that we no longer hold board representation.
Our equity ownership in Adventus currently stands at 12%, and we hold a 2% NSR royalty on its flagship Curipamba copper gold project located in Ecuador. We, of course, continue to remain strong supporters of the business. We had additional gains of 2¢ on relating relating to the disposal of mineral properties that were partially offset by noncash impairment charges on the write down of mineral properties as well as a 1¢ per share charge related to the fair value adjustment of a derivative and foreign exchange. In April, we received 600,000 shares of Champion iron as a result of Champion's acquisition of the CAMI project through a receivership prod process and the settlement of debt and interest obligations incurred by its owner to whom the corporation was a lender. We recorded interest income of 636,000 during the quarter after recognizing the value of the shares received.
It's also worth noting that we continue to hold a 3% GSR royalty on the CAMI project. You saw in our press release that our board of directors has once again increased the dividend by 40¢ or 40%, I'm sorry, from 5¢ per share quarterly to 7¢ per share. The dividend will be paid to shareholders of record on August 31, and the payment date is estimated to be 09/15/2021. Now I'll turn to balance sheet and capital allocation. The cash position increased from increased to $115,900,000 at the end of the quarter, with $96,700,000 being the ARR cash balance, which we consolidate by virtue of our 59% ownership interest in ARR.
The cash position excluding ARR is $19,000,000 at the end of Q2. We also announced that we intend to refinance our debt facilities that will result in a slight decrease in interest rates and also increases our available credit to 225,000,000 and extends the term from June 2023 to August 2025. This change also gives us additional capital allocation flexibility as the quarterly principal repayment will decline from 5,000,000 to 2,000,000 per quarter, and certain other covenant restrictions will be eliminated or reduced. Outstanding debt as of today is a 117,000,000, which means we we will have approximately 108,000,000 available liquidity under the new facility, which compares to 43,000,000 at June 30. The credit facility improvements reflect our lenders and management's recognition of a general strengthening of our business as the previous countercyclical period of M and A based growth is behind us and will bear fruit as we move forward into this next part of the commodity cycle.
This viewpoint is also reflected in the confidence demonstrated by our Board of Directors this quarter in electing to increase our regular dividend. That's my main remarks today, and now I'll turn it over to Brian.
Thanks, Fan and Flora. Thanks, everybody, for joining us. Q two was a good one overall for Alpeus, mainly on the strength of improved prices across most of the commodity areas we have exposure to. We came close to a new quarterly record even though it wasn't a particularly strong one in terms of royalty volumes due to a variety of factors ranging from lower mine grades and base metals, accelerated closure of two production shafts at the Escherhazy mine, and port issues for iron ore. Volume improvements are expected in the back half of the year, however, with IOC expected to make up lost shipping tons, nutrient planning to significantly ramp up production, and Lundin planning to mine better copperhead grade material at Chapada.
The strong prices being experienced are the result of a combination of continuing cyclical as well as structural shifts for the prior period of low capital investment within the sector is being met with expectations of global demand growth. Much of this growth relates to widespread infrastructure plan spending plan They're generally focused around several important macro trend transitions that we have been aligning your business with over the past number of years. So while the benefits being felt to date this cycle are still largely price driven, we continue to believe that current incentivization conditions are translating into an upcoming period of operated or funded organic growth for our business. This is expected to come through a series of expansions and new builds across much of our long life, low cost portfolio. The most widely recognized of the macro trends we have aligned with is the clean energy transition, and in particular, within that broad consumer and industrial level electrification.
Electricity generation is moving decidedly towards renewable sources at the expense of fossil fuel with relative growth rates still widening in most markets. This is providing tailwinds for several of our exposure areas. Our own energy transition goals continue to be strongly executed upon as ARR, now a public subsidiary, has the day to date created royalties on 10 advanced through the operating stage utility scale renewable power projects in The United States. Associated revenue will begin to ramp up in 2022 sooner than expected even a quarter ago. Our coal based electrical generation exposure, on the other hand, now includes only one remaining plant in Alberta that produced less than 10% of revenue this quarter and which represents much less than that on a net asset value basis.
At its peak in 2016, coal based revenue accounted for more than 46% of our business. The renewable energy sector still has the yeoman's work ahead to power increased electrification requirements, including perhaps most profoundly as it relates to transportation. But are considering the renewable energy installations themselves, the transmission overhaul requirements, the charging infrastructure, or the vehicles, a common supply chain challenge relates to commodities such as copper, steel, lithium, and nickel, all of which we have been working to increase our exposure to for almost a decade now. Prices across this complex have responded accordingly. And while incentivization levels are generally present, the mining sector yet to really respond with much needed investments in supply.
The talk has begun, but the capital commitments have yet to materialize. The reality is that the collective cover for new major projects is pretty bare, and what does exist is being challenged once again by increasing cost risks stemming from resource taxation pressures in several major producing regions, labor costs and availability, energy costs, and more just general inflation inflationary factors. Investments will come. They must. However, we believe that the incentive price structures that are needed are moving further upwards.
In reading the q two reports of the world's mining houses, evidence of cost inflation is a very common takeaway. This is feeling reminiscent of what occurred in the mid two thousands when, for example, the incentive price for copper moved from the $1.50 range to the $3.50 range. In the transitory versus structural inflation debate, you can put us in the structural camp, at least as it relates to the cost of winning metal from what remains of the world's ore deposit. There are two key points to note from this for all of your shareholders. First, royalties love inflation.
No share of the higher costs, but full beneficiaries of the resulting higher prices. And secondly, we have been carefully building exposures to those select deposits that can be built or expanded competitively as demand and depletion pressures continue to build across the sector. Boise Bay has just begun production from the first of two new nickel deposits being developed, with the second to follow shortly. At Chapada, work is underway to determine the scale and scope of potential copper expansion. A feasibility study is nearing completion for Adventus' Curipamba project in Ecuador.
Sigma is moving ahead with development of the new high grade lithium mine, and LRC continues to add several other new royalties. And last but not least, Champion is busy with a feasibility study to evaluate the Cameo iron ore project's potential as an ultra high purity producer capable of meeting increasing relative demands for cleaner steel production in the world. We're expecting a lot of positive news in these fronts through the back '21 and into early twenty twenty two. The other major macro trend that we are aligned with relates to food production within an ever more uncertain climatic agricultural backdrop. The topic of food security has regained global attention, and crop prices have generally moved sharply upwards.
This has in turn driven demand and pricing for potash fertilizers, and we are exposed to the best mine sources in the world in Saskatchewan, Canada. So far this year, it seems as if the limited demand in potash has been available supply, which is in remarkable contrast to the narrative that has prevailed over the past several years. Spot prices for potash have more than doubled year over year, and perhaps more importantly, our royalty mines uniquely have remaining capacity from expansions commissioned during the previous cycle and that are now accelerating ramp ups in order to meet the higher demand. While we caution that there is an inherent short term lag effect between spot price increases and realized prices and fundamental constraints to the pace that increased capacity utilization can occur, the outlook for our potash royalty portfolio is becoming very bullish over all time frame. We further believe that the next general way of investment in the building of new potash capacity, including for several of our royalty mine, is closer than the market is anticipating.
These are seriously long lead projects, and we are approaching the time as a sector to make calls on new investments in order to keep pace with future projected demand growth, which by the way is compounding against higher and higher base levels. Turning now to our project generation business. Our junior equity portfolio continues to perform well and liquidity opportunities have been increasing generally as other capital providers increase exposure exploration and development subsectors. Our pace of new project sales in exchange for equity positions and royalties has remained strong and and is experiencing almost insatiable demand. This is coming from producers looking to replenish exploration pipelines after years of underinvestment as well as the now better funded junior exploration sector.
From the more advanced holdings in our PG equity and royalty portfolio, we are also anticipating a lot of news flow in the coming months. Feasibility study result is coming for Adventures' Curipamba project from which, incidentally, discovery of a new mineralized zone was announced just yesterday. AngloGold Ashanti also revealed this quarter that its silicon silicon gold deposit discovery in Nevada is moving into economic studies with a first stage review expected to be completed in the second half of this year. It also noted that it encountered positive gold intercepts and widespread drilling from a secondary within the project footprint that are reversed with the Merlin target. Recall that we hold a direct royalty on Silicon and our major shareholders of Origin royalties who hold a second royalty there.
Resource updates and other advanced stage work programs are underway for several additional projects within our portfolio, including Aberdeen, Wilfrid Picket Mountain, Avivian's, Labrador West, and Saukerman's Moosehead projects. Beyond that, the companies within our portfolio continue to meet with great capital raising success, and this is translating into an unprecedented level of exploration drilling exposure and discovery optionality for our shareholders. And with that, I will turn the session over to questions. Thank you very much.
Your first question comes from the line of Kerry McCreery with Canaccord Genuity.
Good morning, everyone. Maybe just first on the credit facility. You bumped it up there. Should we think of that as, you know, just taking advantage of better credit conditions, or, you know, are there opportunities that you're seeing out of pocket in the market that you could deploy into?
I guess the first comment I'd make there is, you know, generally speaking, you you do these things when you don't need to. But there's a reflection here of, you know, the previous credit facility that we had in place was was worked through, you know, through that period of pretty aggressive m and a for us. You know, We did lots of different sorts of things which required tons of different amendments to the agreement. So we're starting to get really messy.
So it was time just to do a bit of a reset and to talk to our lenders about how the business had evolved and changed. And so Ben and the team did some great work, I think, in just cleaning things up and putting us in in good stead. I wouldn't read try to read through that there's immediate plans for the use of that additional liquidity. But, obviously, you know, you never know when you need liquidity and when opportunities come along, so you you you wanna have it done in advance. But, again, great credit to the team.
It's a really nice, clean structure, and I think it better matches where the business, has gone over the past few years.
Then maybe just trying to understand the renewables business. So you've got, I guess, active project now in 2.5 gigawatts, and I think you targeted or you have you expect about four gigawatts once all the capital that's been deployed is deployed. Is that the way to think about that?
It's just I wouldn't get too precise around that just because, like, you saw on ARR just announced that it had deployed 35,000,000 in an operating stage project that so, you know, it's a larger ticket size. So it won't bring as many headline megawatts into our portfolio, but from a percentage of or, you know, royalty percentage and, you know, per percentage of the portfolio, it's it's obviously very substantial. So for the if we were to take all of the remaining capital within ARR and buy projects of that type, there'd be less megawatts at higher royalty rates. And if all of the capital came, was was deployed with developers where we, you know, we have lower royalty rates, there'd be more megawatts. But I think the takeaway for, you know, what's been happening with ARR that, you know, at the time of the IPO, it set for itself two key objectives that were, you know, were were critical.
A, it was to see the investments that have been made with existing developers continue to result in a strong sales pipeline that was resulting in new royalties on our behalf. So that was an exceptional quarter in that regard. And then the other was regarding, you know, the pace at which we could deploy capital at the types of returns that that we've been targeting. And, yeah, over the quarter, there was almost $55,000,000 US deployed. So we feel really good about how ARR has been progressing.
It's only six months post the IPO, but against those two major execution type objectives, you know, it's going gangbusters.
Great. And maybe just one last one for me, and I'll pass it on. But just in terms of Apollo's position, how much more capital do they need to commit to get to their 50%?
Ben, you might have to help me with the exact number. Because this was in the the latest acquisition was in a, you know, an operating stage project, we had to redo some of the structuring a little bit, and it resulted in ARR contributing to the investment despite the fact that that Apollo isn't completed on the earnings. So their original commitment would have been 80,000,000, and that's now been bumped up to 91,000,000 against which Banner Flora. Maybe you can help me with how much shuffle along they are on that now.
It's about 32 remaining. Yeah. They expect to have that requested by December 31 of this year.
That's it for me. Thanks, Brian. Done.
Thank you, period.
Once again, to ask a question, you will need to press 1 on your telephone. To withdraw your question, press the pound or hash key. Your next question comes from the line of Craig Hutchison with TD Securities.
Hi. Good morning, guys. In terms of your potash royalties, you noted that Esterhazy shafts, one, K 2, are closed in the quarter, and K 3 is ramping up. Is it your understanding that your volumes from Esterhazy will be flat, or or or do you expect them to be higher over the back half of this year?
Yeah. So, obviously, the K 1, K 2 closure came earlier than expected. That was that was in the cards. Yes. Obviously, Mosaic has been investing pretty heavily in the K 3 production area with a view towards, you know, bringing down one and two, but I think water flows accelerated in in the 1 And 2 area, which resulted in that early closure.
So they're not quite at full ramp up from K 3 yet, in order to replace some of those lost tons, but I believe and you can correct me in their own, their own reporting. I believe they expect to have K 3 fully ramped up somewhere in the first half of of next year. And so it's the shaft area is obviously, you know, just it's it's a function how much material can you get to surface. Once it gets the surface through K 3, the plant that are the topside facilities that would have previously serviced K 1 and K 2 can be utilized. So there'll be higher production rates from K 3 to offset the loss, from one and two, and then there's no bottleneck at top because, you know, it just hauls up from K 3 now instead of K 1 and K 2.
So, yeah, generally speaking, I think the plan is to be at the same sort of level once K 3 fully ramps up. But there's a few there's a couple of quarters of lower production from Esterhazy ahead for sure. And and, of course, that's also being offset now by, actually, more than offset by their neighbor, Nutrien Right. Announcing in the quarter two 500,000 ton ramp up. So whatever Mosaic loses in the short term, Nutrien is more than made up for.
So net net higher higher volumes over the back half of this year, obviously, higher prices as well.
Yeah. And and bear in mind that we own varying royalty rates by mine, so we don't have great color at this point as to where that increment of new production from from Nutrien will come from. So some of it might be from lower royalty rate or higher royalty rate mines. But generally speaking, we'll be beneficiary. Yeah.
And great to see the
the dividend bump. Is there a a sort of target payout ratio that you guys have, and and how is that measured? Is it based on free cash flow or kinda operating cash flows?
The way we approach that in in doing the research for the board was just to, you know, to toggle around different dividend levels in the near term and then to compare that against, you know, ongoing free cash flow levels. So it's not a precise, you know, exactly this percentage of payout, which it's it's based more on an outlook across the portfolio, and there's still a fair bit of uncertainty there. I mean, there there's a lot of optionality, if you will, in our in our portfolio with announcements still pending on expansions and new builds and those sorts of things. So I would say it's a conservative, it's a conservative bump at this point relative to current free cash flow levels. But as we get more color in the future on on just portfolio dynamics longer term here, we'll we'll just make continuous assessments of our capital allocation flexibility.
But, you know, again, for our shareholders, I think there hasn't been a dividend increase in a couple of years. We've been going through a period of pretty rapid growth, first through mining m and a and then investments in the Altius Renewables platform prior to its its IPO. And, you know, those those things are are behind us right now. So it's just it was time to see shareholders begin to reap rewards with these better prices and better conditions and the fact that, you know, our bets are largely in now. Okay.
Are you guys
still looking about Long way to say no. It's not a precise payout ratio. It's more
longer term
outlook on business profile and a conservative approach that, hopefully, we can continue on this trend with for for considerable period forward.
Okay. Great. Just are you guys thinking about share buybacks still in the second half this year, or is that sort of put on pause for a bit?
With our you know, with the assessment we made around capital allocation, buyback remains, you know, something that we're very keen on and focused on, but it'll be opportunistic for the for the most part. We've maintained capital allocation flexibility for, you know, growth opportunities if they should arise, special situations, those sorts of things, as well as just opportunistic actions on the around the buyback. But, yeah, we're we're still keen on on bringing down share count longer term.
K. Thanks, guys.
Okay. There's there seems to be no further questions at this time, so I'll turn the call over to Flora Wood for closing remarks.
Thank you, Carol. And I know the 9AM conference call slot was a busy one this morning with with analysts on different calls. So thank you to everybody who joined, and we'll look forward to talking again on the Q3 call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.