Good day, and thank you for standing by. Welcome to the Altius Minerals Corporation Q1 2021 financial conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question- and- answer session. To ask a question during today's session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I will now hand the conference over to your speaker today, Flora Wood. Please go ahead.
Thank you, Adrienne. Good morning, everyone, and welcome to our Q1 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 the website at www.altiusminerals.com. I'll also point out, after the call, we'll be holding our annual general meeting, again by conference call or webcast, and the coordinates for that event are on our website and in the management information circular. Start time for that is 11:30 A.M. Eastern. One more event announcement. Tomorrow from 9:00 A.M. - 11:00 A.M. Eastern, we're holding a virtual investor day call and webcast, where we're doing a deeper dive into the fundamentals of our producing royalties and also covering development stage royalties.
The details for that are on our website. The conference call has a live Q&A session. The webcast is a recording of the session, so no live Q&A interface. We'd love to get questions in advance. We'll read them out and answer them on that call. With the investor day going on tomorrow, our Q1 call today will be a bit shorter than usual. Brian Dalton, CEO, Ben Lewis, CFO, are both speakers today. Then we'll open it up for questions. The forward-looking statements you've seen on slide two 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. Q1 royalty revenue of CAD 17.8 million or CAD 0.43 per share was down 19% from Q4 2020 when we had the large end-of-year catch-up dividend from Labrador Iron Ore Royalty Corporation. On some price and timing of sales recognition lags this Q1 that we expect to start to catch up during Q2. On a year-over-year comparison basis, Q1 revenue was up 9% from last year. Q1 EBITDA was CAD 14.6 million or CAD 0.35 per share compared to CAD 17.6 million last quarter, consistent with the change in revenue. The EBITDA margin was 82% this quarter compared to 80% last quarter. Both Q4 and Q1 EBITDA margins are at the upper end of our traditional range. Relative to revenue growth, fixed costs remained stable, and so were constructive to margins. G&A expenditures of CAD 1.9 million in Q1 are down 27% from Q4.
This is explained mostly by higher legal and other professional fees in the prior period. The Great Bay Renewables subsidiary G&A is no longer included in our consolidated numbers after the formation of the joint venture between ARR and Apollo Funds in October last year, with revenue and expenses now presented in earnings or loss from joint ventures. Adjusted operating cash flow was CAD 8.8 million this quarter, down 35% from Q4 adjusted operating cash flow of CAD 13.5 million, and was largely caused by the timing of corporate tax installments. The quarterly net earnings of CAD 11.8 million or CAD 0.28 per share include CAD 0.14 in non-cash adjustment items that are identified in the waterfall table and slide that you can find on our website, leading to adjusted net earnings of CAD 0.14 per share.
The main adjustment item is a CAD 0.09 per share gain on fair value of derivatives, which reflects the increase in market value of warrants held within the PG equity portfolio. In addition, there are smaller foreign exchange gains, dilution gains, and a reversal of the impairment recorded on the secured loan to Alderon. We fully recovered the loan amount shortly after the quarter when we received an additional 600,000 Champion shares as part of that receivership-based asset sales settlement process. I'll also remind you that we hold a 3% gross sales royalty on the Kami iron ore project, which Champion is currently evaluating. The board of directors declared a CAD 0.05 per share dividend to be paid to shareholders of record on May 31st. Payment date will be June 15th, 2021. Now I'll turn to the balance sheet and capital allocation.
The cash position increased to approximately CAD 112 million at the end of the quarter, mainly because of the net proceeds received from the IPO of Altius Renewable Royalties. We report ARR in our consolidated financial statements because we currently own 59% of that company. The cash position, excluding the ARR IPO proceeds, is CAD 19 million, which has been around our comfort level for the last few quarters. We received CAD 5.6 million from the exercise of 400,000 warrants that were held by Yamana as part of the 2016 Chapada stream purchase, and immediately used these proceeds, as well as some additional cash, to buy back 473,000 shares during the quarter, or 1.1% of our shares outstanding, for a total cost of CAD 7.4 million. In addition to our regular interest payments, dividend payment, preferred distributions, and debt reduction payments, we also invested CAD 4 million in investments in our PG equity portfolio.
This was offset by CAD 7 million in sales. We invested CAD 2.2 million in Lithium Royalty Corp., which was part of a previously disclosed investment commitment. That's my main remarks for the day, and I'll turn it over to Brian.
Thank you, Ben. Thank you, Flora. As Flora said, we have our Investor Day tomorrow. I'll keep these remarks brief. Don't want to run the risk of having nothing fresh or fun to talk about tomorrow. By way of a teaser for Investor Day, I want you to consider the following excerpts from our 2019 Letter to Shareholders, which can be found in its entirety in the investor section of our website. At the conclusion of that Letter, we said, "The business is strong and filled with embedded royalty volume growth that is already happening in a meaningful and measurable fashion. This is occurring across a diverse portfolio of long-life, high-margin mining assets, mines that produce those commodities that are best aligned with long-term global structural trend shifts. The Altius Renewable Royalties platform is developing more quickly than we could have hoped.
The timing of the perfect storm for metal prices is hard to call precisely, but its forces are deeply structural and intensifying. Its demand drivers have already begun to emerge, while the incentivization conditions needed to bring on required levels of new supply for replacements and growth are still absent. The longer that this combination persists, the stronger the storm is likely to be when it comes, and our royalties will directly and immediately benefit. Our PG business should flourish, and even more production growth will materialize from within our current pipeline. An incredible number of things have gone on in the world to try to offset that thesis since then. In 2019, there was the Trump trade war with China, which emboldened the bears and slowed the approach of the storm. Then, of course, the whole world shut down for the best part of 2020.
To keep the meteorological analogy going, we can probably call COVID the mother of all blocking systems. The front edge of the storm has made its inevitable landfall now, however, and it is feeling like a doozy. The previous super cycle, when measured from bottom to bottom, ran from about 2001 to 2016. Incentive price and sentiment conditions were crossed into around 2005, 2006, and persisted until, say, 2011 - 2012, if we ignore the little global financial crisis episode in the middle, when resulting supply impacts began to push the market to below incentivization levels for the next nine years or so until today. The boom sets off the bust and vice versa. Our focus during Investor Day will therefore be to highlight how Altius has positioned itself to benefit from this latest cyclical shift.
You will hear the words organic growth and optionality quite a bit, don't gloss over the forward-looking statement warning. We've had a lot of fun putting it together. I hope our shareholders and investors will find it an interesting session. We also have the special treat of being joined by Champion, David Cataford, who will tackle the topics of iron ore quality and cleaner steel making for us and explain why the Labrador Trough is about to become so much more globally relevant and necessary. Hope that's enough of a teaser. Any questions on the quarter?
Adrienne, you want to open up the Q&A?
As a reminder, if you would like to ask a question, press star one. That is star one for questions. The next question comes from the line of Craig Hutchison with TD Securities.
Hi, guys. Thanks for taking the question. I'm sure you're going to address this tomorrow, and I don't want to steal any of your thunder, but just in terms of a question of capital allocation, obviously, given the extraordinary strength we're seeing here in the underlying commodities and in your royalty portfolios, any insight you can provide into thinking what you guys might do with some of that excess cash flow, both in terms of capital allocation and maybe further capital returns to shareholders?
Well, first off, Craig, I can't even tell you how happy I am to get a question like that. We actually had a board meeting yesterday. Look, it's been a really busy quarter between the ARR spin-out and everything else. As we go into the rest of the year and even this quarter, there's a lot of work that we're planning to do on updating our capital allocation strategy. We feel like this is a bit of an inflection point now cyclically. Conditions are not great for M&A type activity and buying assets. It's just not the right part of the cycle.
That was the last part when we were very busy. We've obviously got some debt still on our books from all those acquisitions. That'll be part of the prioritization. Returns of capital are definitely going to be a huge part of that discussion. Give us a quarter or so to do the work and think things through with a longer-term perspective so we can give our shareholders some better guidance. Work in progress.
Okay. Maybe just one other question from me. In terms of your project generation portfolio, we are seeing a lot of renewed exploration spending and budgets here. Is there anything, one or two assets in your portfolio that you would want to highlight, maybe just in terms of what you see the best kind of growth potential and maybe the possibility of eventually being a paying royalty in your portfolio?
It's definitely getting into thunder for turning. I don't want to steal any thunder from tomorrow, I'll give it a stab. The things we're looking at with high anticipation obviously are probably foremost, would be hopes that Champion goes ahead and builds the Kami project. That would be an incredibly material event in our future if that were to come to be. Broadly speaking, within the PG portfolio, Adventus has got a feasibility study coming this year. Half a dozen or so have resource estimates and PEA-type studies coming. I don't think all of those really are it's possible for some. Some of those could get there this cycle. Others, I think, are probably longer term. I'd say that's what they're all, lots of things going in the right direction.
Far more speculatively, we want a royalty on a project that AngloGold Ashanti in Nevada has been very busy on, called Silicon, and there's quite a bit of buzz around that. Don't know. They've been very tight-lipped about results to date. I think there's some strategic reasons for that.
Sure
Just as a little something that we're watching kind of item. There's quite a bit. We really did a lot of work between, say, 2013, 2016, 2017, loading up on land, converted those equity positions. The juniors that ended up with those projects are doing really well. They've been, I think, raising an outsized share of capital. They've been attracting really strong new investors. They're coming alongside of us. Couldn't be happier with how the PG business is unfolding now that speculative capital has returned to the sector. Seems like it's finally left weed and everything else, and it's come back to its natural home. It's none too soon.
Agreed. Okay. That was great. I look forward to the investor day tomorrow. Thanks for taking my questions.
Cheers.
The next question comes from the line of Carey MacRury with Canaccord Genuity.
Hey, good morning, Brian and everyone. Just one question from me on the quarter. Just in terms of the coal business, you had a big Q4, then it came down pretty sharply in Q1. Just wondering, is there any guidance you can give us for coal for 2021? Is it going to be more similar to Q1? I noticed you mentioned for Sheerness reaching the end-of-life authorization. Just any color on the coal business would be great.
We don't see much hope for surprises from Sheerness, and that was, of course, a lot of what happened in Q4. It's a bit of a surge. I don't know if it was getting rid of what inventories were around or whatever, we don't see much there. For Genesee, it looks like business as usual for a bit of time yet as they get going on their gas conversion. I think it's how we're looking at us and how I see it. I mean, looking at Genesee doing okay and keeping on going for a bit here, we all know the writing is on the wall and that Capital Power is trying to get coal off of its record as well, as quickly as possible. There's a couple more years there.
Okay, great. That's it for me. I'll save the rest for tomorrow. Thanks.
The next question comes from the line of Brian MacArthur with Raymond James.
Hi, good morning. Just quickly, vis-à-vis your capital cycle comments, do you have much more to monetize in the private or junior equity portfolio, or are we pretty well done? Are you expecting a lot more to come out of that as far as monetization?
Within the PG portfolio?
Yes, please.
Wow. I think at the end of the March, we reported somewhere in the mid-50s of equity values held, and we've been monetizing lots over the last few years. We've also been continuously adding positions because the team has been doing really well with selling on new projects for new equities with a bit of a natural replenishment that happens there. It would have been mid-50s, and you know what the market has done since the end of March. It's more than that now. Yeah, there's been good appreciation, and I think there's still quite a bit on some of the names to come, and we'll keep adding new equity positions as additional projects are upended for shares and royalties. Pretty early days for what's going to come from that portfolio for this cycle as far as land concerns.
Right. Sorry, just to be clear, there is more private stuff that you can vend out. Last cycle, you had a whole inventory.
Right.
I'm curious where we are in that part of the phase of vending the land back out to juniors, whether we're 80% done or 60% done.
Yeah, sorry, I misinterpreted the question. Even if you remember back to 2016, we would've talked about what it was, somewhere around 1.7 million ha of land sitting on autopilot to build over the next few years. Inventory has been running on a sort of a just in time basis ever since. The team is active in building up positions. There's a handful of projects within the portfolio that are at different stages, and there's new ones being added. There hasn't been a big inventory there for a couple of years. We continue to work at replenishment every day. The big backlog or the big load up, as we call it, through the down cycle when things were really opportune, has been cleared, and now it's just new ideas and continuous additions.
Thank you very much. I'll keep the rest of my questions till tomorrow.
Great.
Again, if you would like to ask a question, press star one. The next question comes from the line of John Tumazos with John Tumazos Very Independent Research.
We realize that the history of all this is very patient, project generating, exploration, getting in sort of on the ground floor, and helping to grow a project. Some of the other companies write big checks. In the March quarter, Franco-Nevada invested about $600 million in iron ore. They bought a $538 million debenture in Vale as a participating debenture plus some Labrador iron units. Could you give us a sense of the speed of the redeployment away from coal and potash into base metals and renewables, and the trade-off between patience or Franco writing a big check and getting immediate exposure?
Yeah. I think it's a great question, John. First one, let me clarify. Yes, there's no doubt that Franco recently bought the Vale debentures, but I note that they were actually basically disclosing much earlier purchases of Labrador. In fact, based on their average prices, it sounds like we're running a pretty parallel track in terms of when we started, probably around 2016. There was no other way you could get to that average price other than there. We were 2016 and right up into 2018, soon after we used a bunch of the Fairfax royalties, actually, where we got a lot of our position. As far as the longer-term approach, we're counter cyclical, obviously, and we'll build things up a bit slower and let the option value play out. Kind of where you're going, I think, is do we buy all through the cycle?
Generally speaking, no, that's not how we do it. We feel really good about the bets we have in some of the earlier-stage bets we made over the last number of years, growing our portfolio, whether it's expansions at existing mines or new developments like Kami or those sorts of things. I wouldn't look for it. I just wouldn't look for it from us. We never say never because special situations arise, but it's not our intent to buy all through the cycle. We buy when conditions are really opportune, and we let organic growth take over when prices and incentivization conditions kick in. That's why we were picking for royalties, whether they were existing operations or development assets, that we felt were most likely to be invested in when the time came. Big resource lives, great margin positions, pretty straightforward predictors, really, of future investment.
That's what we see in our immediate future. The last comment I'll make there is Franco has a different situation than we do in that they have a different equity cost of capital profile, and that gives them, I think, more flexibility to work throughout the cycle. Maybe we get there someday, but that's not what we're doing now. The other way that reflects is that a lot of our acquisitions through the down cycle made use of leverage. Franco doesn't typically do that because their equity cost of capital means they don't have to. I don't know if I'm answering any part of your question there, but we feel really good about where our position for this part of the cycle, and whenever this one end , hopefully 10 or 15 years from now, we'll be ready to go again on the more M&A side.
It's not the key focus right now.
Thank you. That's a very good explanation. If I could ask another question, once again on iron ore. Champion lists eight projects on their website. Clearly, a couple of them are much bigger, advanced, producing or potentially producing. Are you open to investing in such early-stage iron ore exploration in the Labrador Trough to add to your iron ore exposure? Is owning 600,000 shares of Champion a good enough way to participate in the package of the different growth properties?
We've got a little more than that because we still have shares. We indexed invested into Champion back soon after they bought Bloom Lake. We have, I believe, somewhere just over a million shares, I think, of Champion. Still, to your question, a lot of our exposure here going forward to what Champion does, at least we hope, is through our royalty in Kami. We really hope that that rises to the forefront as far as their next phase of expansion and growth develops there. We also do have other pretty significant iron ore interests within the Labrador Trough. We've been active there for, I don't know how long now, 15 years probably. We all know about Kami and our royalty there, but there are other projects, actually, one of which will probably have a first resource estimate published on later this year.
It's within a company called Avidian Gold or a spin out of theirs, or a division of theirs called High Tide. We've got more layers of exposure to the Labrador Trough, and I do think the Labrador Trough, despite it being running now for whatever it is, 50 or 60 or 70 years, I think it's really just coming into its heyday. From a long-term perspective, we're very deeply positioned there. Would we get involved with other projects? Probably. We have a great relationship with Champion that goes way back. If there's something else that they were advancing and they wanted to work with us, David or Michael would only have to pick up the phone, and we'd have very open ears for sure. It's been great.
I'll now turn it back over to John for closing remarks.
I think that was Flora Wood.
Well, thanks, everybody. Yeah. Thanks, everybody, for dialing in, and I really appreciate the questions. We'll look forward to talking to you tomorrow.
Thanks, everybody.
Thank you.
This concludes today's call. You may now disconnect.