Ladies and gentlemen, thank you for standing by, and welcome to the Altius Minerals Corp. Q2 twenty twenty Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would like to now hand the conference over to your speaker today, Laura 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 and A.
The forward looking statement on Slide two applies to everything we say both in the formal remarks and during the Q and A. And 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 $13,000,000 or $0.31 per share was down 20% from Q1, primarily on lower prices related to demand concerns associated with the COVID-nineteen pandemic, lower power consumption in Alberta and IOC's decision to maintain cash on its balance sheet rather than pay dividends. Q2 EBITDA was $10,000,000 compared to $12,700,000 in Q1, with the decline following the decline in revenue. General and administrative costs of $1,900,000 this quarter are consistent with last quarter and the previous year. Adjusted operating cash flow was $13,400,000 this quarter, an increase over the $13,200,000 last quarter despite the drop in revenue and EBITDA.
The higher adjusted operating cash flow reflects the timing of corporate income tax payments and operating 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-nineteen allows for an extension. We expect these payments to be made by the September. The quarterly net earnings amount of $4,100,000 or $0.10 per share includes a number of noncash 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, $0.07 per share combined, offset by a smaller loss of $01 per share through share of loss in investments and associates. The adjusted earnings are $04 per share. The Board of Directors declared a $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 48,000,000 in the value of the Project Generation equity portfolio and $70,000,000 in LIORC shares.
As of yesterday, these amounts stood at $55,000,000 and $78,000,000 respectively, as the markets continue to recover. After payment of our preferred security distributions and common share dividends and a further GBP 3,200,000.0 spent on normal course issuer bid repurchases, we ended the quarter with $30,600,000 in cash and cash equivalents. After quarter end, we drew on cash reserves to pay the approximate $9,000,000 net purchase consideration for the recently announced acquisition of Liberty's interest in certain coal partnerships. We also made a USD 3,000,000 milestone payment to TGE to bring total funding to USD 22,000,000 out of the USD 30,000,000 commitment, with first royalty expected at the end of next year. During Q3, we intend to evaluate the carrying value of our royalty interest in light of the new average book value.
The carrying value of our five coal royalties post closing of the Liberty transaction is approximately $80,000,000 We have $80,000,000 outstanding in term debt, and we are scheduled to repay at a rate of $20,000,000 per year and a final maturity date of June 2023. We also have approximately 65,000,000 drawn against our revolving credit facility with 35,000,000 on 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 twelve 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'm on mute. Thank you all for joining. I'll begin by addressing the recently announced acquisition from Liberty Metals and 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 decker since what it really represents is not a doubling down on coal, but a doubling down on renewable investment. We see a certain elegance in using this residual revenue from coal power generation plants that are on an absolute path to close into supporting the global renewable energy transition as well as enhancing our own portfolio of 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 Altice Renewable Royalties, which is being led by Frank Gettman and his team in New Hampshire. Towards the '1, we announced a new royalty investment with Apex Clean Energy. Apex is a leader in US 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're 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 for the sector. 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 spinout and are being met with enthusiasm in this regard.
It should be noted that these are not use mutually exclusive fronts. There's 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 the democratic presidential win in The US 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 initiatives that reference this possibility. Switching now to base metals and copper in particular, which is our largest copper commodity exposure, prices have rebounded beyond pre COVID levels, and we remain longer term goals. Factors that excite us including 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 basin industrial metals, but it has the potential to be particularly profound during this cycle as a 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's 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 good one for executing on these capital projects for obvious reasons. One absolute impact of COVID will be a setback in the time frame for much of the planned production replacement and growth that might have been expected otherwise. This is a bit double edged for us, but there is also pushback from all the preliminary work that Lundin has been doing with respect to a potential expansion of the Sapada mine. But we consider this minor within the bigger picture and commend Lundin for the responsible management of COVID 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 have stabilized since the signing of India China supply contracts in May and as inventory built during last year's generally poor growing season have gone 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 this operation flowing from our holding Labrador iron ore royalty company was down considerably in the first half of the year as IOC elected to maintain increase on its balance sheet rather than issue dividends.
LIARC has noticed that this decision by IOC stemmed from COVID-nineteen related economic uncertainties. 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 community. On coal, the Cardinal River met coal royalty contributed $05,000,000 in the quarter and $1,000,000 for the first half of the year, but it is now closed after fifty one 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 sector junior resource sector has returned to favor. As Ben noted, the portfolio value was 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, Abercrombie, Sackerman, Tanex, and Wolfson, among several others. In addition, Renaissance and Ebram have announced a merger to form a new precious metals focused royalty and project generation company anchored by royalties relating to First Majestic Hermetano project in Mexico and AngloGold Ashanti Silicone 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 Silicone project. Thank you, and now I'll open the call to your questions.
Your first question comes from the line of Orest Wowkodaw from Scotiabank. Your line is now open.
Hi, good morning. Just a question about the coal royalties. Wondering if you could give us an update on the, I guess, litigation with respect to claims against the Alberta government. And then 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 of any, compensation. Thank you.
Yes. The litigation process plodged 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 do that remotely. So still in we're still at that stage working right now actually to try to build a new schedule around that, but, obviously, there's there's uncertainty there.
And, yes, we do have entitlement to the full claim related to the limited partnership interest, the full limited partnership interest. So the full $119,000,000 claim with the exception of the the remaining minority shareholders' interest.
I see. Do do you expect to that this will go to court in 02/2021? Could this be take even longer?
It's a hard one to predict. There's not a whole lot of issue, quite frankly. I mean, there there's actually very little dispute around the facts, really. The the what the question is, what do those facts represent? Does it represent the taking or an effective expropriation?
Hard one to call. It doesn't seem the other side is in any great hurry, but, you know, we'll well, I guess we'll update as we know more. We should know more as we go through 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 Lindeen were significantly higher than the attributable royalty revenue that was reported by Altius. So 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 $80,000,000?
Yeah. That's correct. That that would include Liberty as well, our our acquisition of Liberty's portion.
And as far as the Chapada question, Ben can probably fill in better. But, yeah, there is a slight lag from sales to when, when our copper warrants are are received. We'd expect to catch up in the 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. So a carrying value is $80,000,000 but you bought Liberty stake for 9. Does that imply, you know, that transaction value is what you're gonna have to use to write down the book value, or are you gonna do an NPV thing?
Just trying to get the magnitude because if, you know, you buy it for 9, which is a good price, it implies the whole value may be close to 20 than 80. Am I thinking about that right? Or or or how will you proceed through that process? I think, Stacy, can I Yeah? I I think the first thing you do is basically consider averaging down if you look at it that way.
So it won't be if there's any adjustment and and we've gotta do a lot of work on this. We gotta look at mine plans or try and get new mine plans. Basically, you know, consider the purchase price. You know, we've gotta crack open net present value calculations, mine plans, look at the new the latest and greatest on coal to gas conversions, and and talk to operators, and, you know, look at demand for electricity in Alberta as well. So there's a lot of work to do.
So my you know, I I can't give a range at this point because there's a lot to do, but, no, it won't be close to the 10,000,000. It'll if if at all, if, you know, consider the average, the the worst case, I would I would say. And, you know, there we may conclude that there's no adjustment. So it really depends on you know, this just means we gotta crack open the valuation and do some work on it, and and we'll have that done in q three. Great.
Thanks. And, Brian, just following up with your comment that you you this is an alternative financing, if you wanna look at it that way for your renewable business. I guess you'd feel you got a pretty good well, 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 is that a fair statement?
Sure. I mean, just think about the same dollar that we spent here being invested directly into the renewables project. So this is a or renewables opportunity. This is a way to take a dollar, buy this coal, invest multiples of that dollar in renewable energy. So it's obviously if you wanna look at it that way, it just represents an extremely low cost of capital for future investments when you 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 MacRoy from Canaccord. Your line is now open.
Hi. Good morning, everyone. Just, you know, Q3 is shaping up to be a lot better, obviously, with copper prices and iron ore prices rebounding. Just wondering how we should think about coal revenue in the back half of the year just given or relative to Q2, given you have any expectations around that?
I mean, I'm take a peek usually every day at you know, every you can look every day on an Alberta website that shows total generation, but from every source that they're what I can speak to is that, you know, over the last few weeks, at least, things have been running really strongly out there. So Genesee in particular, every day, each of the generators looks to be running at full capacity. Cearness 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 it's never been a 100% producer, an older, less efficient operation. So from what we can see, looking at what everyone else can can look at it, it looks pretty reasonable. Now let's not forget that it's midsummer in Alberta as well, so power generation is gonna peak at the you know, it's a peak period for for consumption in any event.
There is certainly improved industrial demand as well as certain oil industry or oil sector operations rebound. But I we don't think it's Not going right back to '29 not gonna go back to 2019 overnight. It's a slower price.
Suspect a bit of a bump, I guess,
in q three or q two.
It's looking like a better quarter in q three as far as overall energy consumption in Alberta goes relative to q two for sure.
Okay. And then maybe just the remaining funds for the renewable business, just what you're expecting when that would be deployed. Is that 2020, or is something that coming in 2021?
Is that regarding the remaining milestones with PGE?
Yeah. Exactly.
Oh, I think this year.
This year.
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 divest us in 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 Hutchinson from TD Bank. Your line is now open.
Hi, guys. I had a question on the iron ore business and your position at Lyric. I mean, I feel in the past, you guys have been pretty nimble, and you've added your position during kind of downturns. We obviously saw a sharp downturn decline in the share value of LIARC in in the beginning of the q two, 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 kind of add to to your size of your position at LIARC?
Well, it was quite the opposite. In fact, Craig, we we ended up selling some. It was because, you know, we 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 it you know, by 2020, we'd be facing, you know, half of the mines in our portfolio or more shutdown. So it was it was more of a balance sheet driven decision.
And it was also there was a weighing that went on around you know, is that dollar better left in LIORC or deployed in LIORC to buy more LIORC, or is it better deployed buying Altius shares? And that was kind of an easy call. So, you know, in a different world, if we were, you know, if we were if we had unlimited capital, we probably would have bought it all.
There were
choices to be made.
Okay. I appreciate that.
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 q three call.
Thanks, everyone.
All right. Thank you.
Bye bye. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.