Ladies and gentlemen, thank you for standing by, and welcome to the Altius Minerals Corp. Q2 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question and answer session. To ask a question during this session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would like to now hand the conference over to your speaker today, Flora Wood, Director of Investor Relations. Please go ahead, ma'am.
Thank you, Joanne. Good morning, everyone, and welcome to our Q2 conference call. Our press release and quarterly filings were released yesterday after the close and are available on our website. This event is being webcast live, and you'll be able to access replay along with the presentation slides that have been added to our website, which is www.altiusminerals.com. Brian Dalton, CEO, and Ben Lewis, CFO, will both be speakers on the call, and then we'll open it up for Q&A. The forward-looking statement on slide two applies to everything we say, both in the formal remarks and during the Q&A. With that, I'd like to turn over to Ben to take us through the numbers.
Thank you, Flora, and good morning, everyone. Q2 royalty revenue of CAD 13 million, or CAD 0.31 per share, was down 20% from Q1, primarily on lower prices related to demand concerns associated with the COVID-19 pandemic, lower power consumption in Alberta, and IOC's decision to maintain cash on its balance sheet rather than pay dividends. Q2 EBITDA was CAD 10 million, compared to CAD 12.7 million in Q1, with the decline following the decline in revenue. General and administrative costs of CAD 1.9 million this quarter are consistent with last quarter and the previous year. Adjusted operating cash flow was CAD 13.4 million this quarter, an increase over the CAD 13.2 million last quarter, despite the drop in revenue and EBITDA. The higher adjusted operating cash flow reflects the timing of corporate income tax payments and lower interest payments due to lower debt costs.
Interest payments this year were lower than last year on a six-month basis, despite the higher borrowing amount, reflecting the drop in base interest rates. Corporate taxes have not yet been paid for 2020. As government relief due to COVID-19 allows for an extension, we expect these payments to be made by the end of September. The quarterly net earnings amount of CAD 4.1 million or CAD 0.10 per share includes a number of non-cash adjustments that are identified in the waterfall table and slide. These include a gain on foreign exchange and on the fair value adjustment of derivatives, CAD 0.07 per share combined, offset by a smaller loss of CAD 0.01 per share through share of loss in investments in associates. The adjusted earnings are CAD 0.04 per share.
The Board of Directors declared a CAD 0.05 per share quarterly dividend, and I'll take this opportunity to remind you that this dividend is eligible for our dividend reinvestment plan, which we announced last quarter for shareholders who are interested in receiving common stock instead of cash. For those who are interested, please visit our website or contact Flora for instructions. Finally, looking at the balance sheet and capital allocation, we ended Q2 with CAD 48 million in the value of the project generation equity portfolio and CAD 70 million in LIORC shares. As of yesterday, these amounts stood at CAD 55 million and CAD 78 million respectively as the markets continued to recover.
After payment of our preferred security distributions and common share dividends and a further CAD 3.2 million spent on normal course issuer bid repurchases, we ended the quarter with CAD 30.6 million in cash and cash equivalents.
After quarter end, we drew on cash reserves to pay the approximate CAD 9 million net purchase consideration for the recently announced acquisition of Liberty Metals & Mining Holdings, LLC's interest in certain coal partnerships. We also made a $3 million milestone payment to TGE to bring total funding to $22 million out of the $30 million commitment, with first royalty expected at the end of next year. During Q3, we intend to evaluate the carrying value of our royalty interests in light of the new average book value. The carrying value of our five coal royalties post-closing of the Liberty Metals & Mining Holdings, LLC transaction is approximately CAD 80 million. We have CAD 80 million outstanding in term debt, and we are scheduled to repay at a rate of CAD 20 million per year on a final maturity date of June 2023.
We also have approximately CAD 65 million drawn against our revolving credit facility with CAD 35 million in undrawn availability. We have continued to be active on our normal course issuer bid as we repurchased 361,900 shares this quarter to bring our trailing 12-month total to 1,353,500 shares. Brian has more to say on macro conditions and the recent acquisition, and I'll now turn it over to him. Brian, are you there?
Sorry, everyone. I was on mute. Thank you all for joining. I will begin by addressing the recently announced acquisition from Liberty Metals & Mining of its partnership interest in Alberta Coal Royalties, and how we intend to allocate the additional cash flow towards continuing royalty investment in the renewable energy sector. Altius has been actively working to align its assets with major global sustainability trends for several years now, since before we knew what the ESG acronym even stood for. Increasing our near-term coal exposure may seem odd, therefore. However, it is not at all when you consider that the underlying goal of sustainability or impact investing is to speed positive change and transition.
In that regard, buying out our partner in coal royalties is quite consistent with our goals and broader sustainability objectives, since what it really represents is not a doubling down on coal, but a doubling down on renewable investments. We see a certain elegance in using this residual revenue from coal power generation plants that are on an absolute path to closure into supporting the global renewable energy transition. As well as enhancing our own portfolio sustainability alignment objectives. The fact that coal is so out of favor that we were able to achieve a price that will ultimately result in a significant leveraging of our renewable royalty investment dollars is a nice bonus. Further on that front, it has been an extremely busy quarter for Altius Renewable Royalties, which is being led by Frank Getman and his team in New Hampshire.
Towards the end of Q1, we announced a new royalty investment with Apex Clean Energy. Apex is a leader in U.S. renewable energy development space in terms of overall portfolio size, projects developed, and also in connecting corporate and industrial users directly with renewable source energy. I think it is worth every Altius shareholder's time to check them out. With this transaction, we added a second top five renewable energy developer, in addition to Tri Global Energy, to our investment portfolio, and the impact on our recognition and acceptability within the broader sector has been quite amazing. For the first time in almost three years of business development at ARR, the deal origination work has become inbound dominated. We are seeing lots of attractive opportunity as a result, and several sets of discussions and negotiations are advancing.
The other major activity within ARR during this quarter has been an effort to attract strategic investment partners to help us scale the business and maintain our leading role in the innovating royalty financing subsector. Our efforts in this regard have been productive, and we feel we're getting close to selecting a partner or partners that can not only augment our capital availability, but also bring other value-adding attributes to the table. We also continue to explore the possibility of bringing ARR public as a pure-play spin-out, and are being met with enthusiasm in this regard. It should be noted that these are not mutually exclusive fronts. There is a commonly cited lack of public investment opportunity in the renewable sector presently, at least relative to the amount of capital that is amassing to invest in sustainability thematics generally, and renewable energy specifically.
As a slight aside, the prospect of a Democratic presidential win in the U.S. is expected to be very positive for the renewable sector, and we are noting significant uptick in the number of investor inquiries regarding our renewables initiative that reference this possibility. Switching now to base metals, and copper in particular, which is our largest commodity exposure. Prices have rebounded to beyond pre-COVID-19 levels, and we remain longer-term bulls. Factors that excite us include the expectation that much of the world, led presently by China, is turning to infrastructure-based stimulus as a means to offset the economic damage inflicted by the pandemic. This is generally bullish for copper and other base and industrial metals, but it has the potential to be particularly profound during this cycle, as the specific type of infrastructure stimulus most commonly being discussed relates to speeding up of electrification and renewable electricity growth.
Most grid systems globally are inadequate presently to support the shift to increasing consumer energy usage coming from electricity at the expense of fossil fuels. Fixing that problem will require an incredible amount of new copper and other base metal production. Not only that, but in the regions where this copper will come from, there is an issue with maintaining current levels of production, never mind bringing on needed increases. Major capital investments are needed. However, this year has not been a good one for executing on these capital projects, for obvious reasons. One absolute impact of COVID-19 will be a setback in the timeframe for much of the planned production replacement and growth that might have been expected otherwise.
This is a bit double-edged for us, as it has also pushed back some of the preliminary work that Lundin has been doing with respect to a potential expansion of the Chapada Mine, what we considered as minor within the bigger picture, and commend Lundin for the responsible management of COVID-19 risks at the mine and within its surrounding communities. Potash volumes have shown a gradual recovery. In the first half of the year relative to late last year, and operators are predicting a significant year-over-year improvement. Prices remain relatively weak, but do appear to have stabilized since the signing of India and China supply contracts in May, and as inventories built during last year's generally poor growing season have drawn down. It seems the world has kept eating through the pandemic.
Iron ore has been a star performer in 2020, and it is another commodity whose demand is expected to benefit from broad-based infrastructure stimulus. IOC has been performing well operationally and benefiting from the strong pricing environment. However, our revenue related to its operations, flowing from our holding Labrador Iron Ore Royalty Corporation, was down considerably in the first half of the year, as IOC elected to maintain increase on its balance sheet rather than issue dividends. LIORC has noted that this decision by IOC stemmed from COVID-19 related economic uncertainty, and if so, this likely represents a deferral rather than a loss of dividend income, given IOC's continuing success in handling the risks to its operations and its workforce and communities.
On coal, the Cardinal River Met Coal Royalty contributed CAD 0.5 million this quarter and CAD 1 million for the first half of the year, but it is now closed after 51 years of mining. Thermal coal royalties were also negatively impacted during the quarter, as power demand declined sharply in Alberta with the oil industry slump and a more general lockdown impact. A gradual recovery appears underway now, however. Last but not least, we are seeing great progress within our project generation business, as the junior resource sector has returned to favor. As Ben noted, the portfolio value has more than fully rebounded from pandemic-driven lows, and many of our portfolio companies have been able to considerably strengthen their balance sheets through equity raises. This is driving a strong second half exploration effort with several large-scale drilling programs from within our portfolio announced.
Notable highlights in this regard include announcements from Adventus, AbraPlata, Sokoman, CanAlaska, and Wolfden, among several others. In addition, Renaissance and Evrim have announced a merger to form a new precious metals-focused royalty and project generation company, anchored by royalties relating to First Majestic's Ermitaño project in Mexico and AngloGold Ashanti's Silicon project gold discovery in Nevada. Altius will be the largest shareholder of the merged company, and it also owns a direct 1.5 % NSR royalty related to the Silicon project. Thank you, now open the call to your questions.
As a reminder to ask aquestion you need to press star one on your telephone. To withdraw your question press pound or hash key. Please stand by as we compile the Q&A roster. Our first question comes from the line of Orest Wowkodaw from Scotiabank. Your line is now open.
Oh, hi. Good morning. Just a question about the coal royalties. Wondering if you could give us an update on the litigation with respect to claims against the Alberta government. I was also wondering whether via your increased ownership of the royalties, whether you also effectively inherit Liberty's claim to their share of any compensation. Thank you.
Yes. The litigation process plods along, I guess, is the best word I can use to describe it. There's been obvious delays as far as discovery goes because we haven't been able to get together to complete that process, and the other side has declined our invite to do that remotely. We're still at that stage, working right now, actually, to try to build a new schedule around that. Obviously, there's uncertainty there. Yes, we do have entitlement to the full claim related to the limited partnership interest, the full limited partnership interest. The full CAD 190 million claim, with the exception of the remaining minority shareholders' interest.
I see. Do you expect that this will go to court in 2021, or could this take even longer?
It's a hard one to predict. There's not a whole lot at issue, quite frankly. There's actually very little dispute around the facts, really. What the question is, what do those facts represent? Does it represent a taking or an effective expropriation? A hard one to call. It doesn't seem the other side is in any great hurry, but we'll update as we know more. We should know more as we go through the autumn.
Okay. Thanks very much.
Your next question comes from the line of Jacques Wortman from Laurentian Bank. Your line is now open.
Hi, good morning, guys. Could you please provide some color on the timing of the receipt of stream revenue for Chapada? Production and sales volumes reported by Lundin were significantly higher than the attributable royalty revenue that was reported by Altius. I just want to get a bit of color on that. Secondly, Ben, if you could just repeat again, what is the carrying value now for the total coal royalty portfolio? Did you say CAD 80 million?
Yeah, that's correct. That would include Liberty as well. Our acquisition of Liberty's portion.
As far as the Chapada question, Ben can probably fill in better, but yeah, there is a slight lag from sales to when our copper warrants are received. We'd expect to catch up in the current quarter.
Okay. Thanks very much.
Your next question comes from the line of Brian MacArthur from Raymond James. Your line is now open.
Good morning. Sorry, just a follow-up on Jacques' question. Carrying value is CAD 80 million, but you bought Liberty's stake for CAD 9. Does that imply that transaction value is what you're going to have to use to write down the book value? Are you going to do an NPV thing? Just trying to get the magnitude, because if you buy it for CAD 9, which is a good price, it implies the whole value may be closer to CAD 20 than CAD 80. Am I thinking about that right? How will you proceed through that process?
To the extent you can.
Yeah. I think the first thing you do is basically consider averaging down, if you look at it that way. If there's any adjustment, we've got to do a lot of work on this. We've got to look at mine plans or try and get new mine plans.
Basically, consider the purchase price. We've got to crack open net present value calculations, mine plans, look at the latest and greatest on coal-to-gas conversions, talk to operators, and look at demand for electricity in Alberta as well. There's a lot of work to do. I can't give a range at this point because there's a lot to do. No, it won't be close to the CAD 10 million. If at all, consider the average the worst case, I would say. We may conclude that there's no adjustment. It really depends on This just means we've got to crack open the valuation and do some work on it, and we'll have that done in Q3.
Great. Thanks. Brian, just following up on your comment that this is an alternative financing, if you want to look at it that way, for your renewables business. I guess you'd feel you got a pretty good, a reasonable deal on this coal thing, and that cost of funding is probably cheaper than you could get cost of funding some other way for the ARR. Is that a fair statement?
Sure. Just think about the same dollar that we spent here being invested directly into the renewables project. This is a renewables opportunity. This is a way to take a dollar, buy this coal, and invest multiples of that dollar into renewable energy. Obviously, if you want to look at it that way, it just represents an extremely low cost of capital for future investments when you back calculate the expected IRR on the coal investment.
Great. Thank you very much.
Your next question comes from the line of Carey MacRury from Canaccord. Your line is now open.
Hi. Good morning, everyone. Q3 is shaping up to be a lot better, obviously, with copper prices and iron ore prices rebounding. Wondering how we should think about coal revenue in the back half of the year, just given or relative to Q2. Do you have any expectations around that?
I take a peek usually every day. You can look every day on an Alberta website that shows total generation from every source that's there. What I can speak to is that over the last few weeks, at least, things have been running really strongly out there. Genesee, in particular, every day, each of the generators looks to be running at full capacity. Keephills would be probably running at around 40%-ish, which is in line with where that's been through the first half of the year, and it's never been 100% producer. It's an older, less efficient operation. From what we can see, looking at what everyone else can look at it looks pretty reasonable. Now, let's not forget that it's midsummer in Alberta as well, so power generation is going to peak at the peak period for consumption in any event.
There is certainly improved industrial demand as well as certain oil industry or oil sector operations rebound. We don't think it's not going right back to 2019. It's not going to go back to 2019 overnight. This is a slower process. I expect a bit of a bump, I guess, in Q3 from Q2. It's looking like a better quarter in Q3 as far as overall energy consumption in Alberta goes relative to Q2 for sure.
Okay. Maybe just the remaining funds for the renewable business, just what you're expecting when that would be deployed. Is that 2020 or is some of that going to be in 2021?
Is that regarding the remaining milestones with TGE?
Yeah, exactly.
Oh, I think this year.
Okay.
We expect that they'll be able to sell enough projects in the remainder of the year to completely meet all milestones under our agreement and to vest us in a full entitlement of royalties based upon the current interest in their portfolio.
Great. Thanks, Brian.
Thank you.
Your next question comes from the line of Craig Hutchison from TD Securities. Your line is now open.
Hi, guys. A question on the iron ore business and your position in LIORC. I feel in the past, you guys have been pretty nimble, and you've added to your position during downturns. We obviously saw a sharp downturn and decline in the share value of LIORC in the beginning of the Q2, but you guys didn't add to your position. Can you just talk about that, whether you guys feel like you've got a sizable position at this point? Are you seeing better opportunities, and that's why you didn't add to or size your position at LIORC?
Well, it was quite the opposite. In fact, Craig, we ended up selling some. It was because we just wanted to make sure that our balance sheet was bulletproof because it was such a crazy time. We didn't know if by this time, by fall of 2020, we'd be facing half of the mines in our portfolio or more shut down. It was more of a balance sheet driven decision. It was also, there was a weighing that went on around, is that dollar better left in LIORC or deployed in LIORC to buy more LIORC, or is it better deployed buying Altius shares? That was kind of an easy call. In a different world, if we had unlimited capital, we probably would've bought it all. There were choices to be made.
Okay. No, I appreciate that.
Again, if you would like to ask a question, press star one on your telephone. There are no further questions at this time. I will turn the call back over to the presenters.
We'd like to thank everybody for joining. That was a good set of questions, too, and we'll look forward to talking to you on the Q3 call.
Thanks, everyone.
All right. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.