Good morning, and welcome to Altius' first quarter 2020 financial results call. At this time, all participants are in a listen only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. If you need operator assistance during the call, please press star zero. I'd now like to turn the conference over to Flora Wood, Director of Investor Relations. Please go ahead, Ms. Wood.
Thank you, Jane. Good morning, everyone, and welcome to our Q1 conference call. Our press release and quarterly filings were released yesterday after the close and are now on 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 on our website. I'll also point out that after the call, we'll be holding our annual and special meeting by conference call and webcast, and the coordinates for that event are on our website and in the management information circular. The AGM will start at 11:30 Eastern Time. We've got Brian Dalton, CEO, and Ben Lewis, CFO, as speakers on the call, and Chad Wells is also in the room for the Q&A. The forward-looking statement on slide two applies to everything we say in our formal remarks and during the Q&A.
With that, I'll turn over to Ben to take us through the numbers.
Thank you, Flora. Good morning, everyone. A couple of accounting highlights this quarter. On page 16 of our financial statements, you'll see we presented Altius Renewable Royalties as a separate business segment for the first time, recognizing both the significant investment we've made in renewables over the past year, as well as its importance as a significant growth initiative. The other main accounting item this quarter is a write-down relating to Alderon, which I'll address as part of the adjusted earnings discussion and which you can see in the waterfall chart on the presentation and in our press release. Q1 royalty revenue of CAD 16.3 million, or CAD 0.39 per share, was down 7% from Q4 2019, with the biggest change coming from iron ore. Labrador Iron Ore Royalty Corporation, or LIORC, dividends paid were CAD 0.35 per share compared to CAD 1.05 per share last quarter.
We also reduced our share position by roughly 1 million shares before the Q1 LIORC record date. Base metal revenues also suffered from lower copper and zinc prices. Potash volumes recovered from the production curtailments imposed by Nutrien and Mosaic last quarter as part of a global producer effort to reduce excess inventories. Our realized potash prices are down 6% from Q4 2019 as the U.S. price decline was partially offset by a lower Canadian dollar exchange rate. Q1 EBITDA was CAD 12.7 million compared to CAD 13.6 million last quarter, down 7% and consistent with the change in revenue. This represents an overall EBITDA margin of 78%, and the mineral royalty segment EBITDA is 87%. First quarter EBITDA benefited from lower G&A expenses of CAD 2 million in the quarter compared to CAD 2.6 million in Q4.
The first half of this year will continue to see lower G&A as we've cut discretionary corporate development expenses due to COVID-19. Adjusted operating cash flow was CAD 13.2 million this quarter, up 40% from last quarter, largely attributable to working capital changes and the timing of taxes and interest payments. Interest payments will be higher next quarter with the additional debt service costs on increased borrowing on our revolver to fund the Apex Clean Energy royalty portfolio acquisition that Brian will talk about later. The quarterly net loss of CAD 3.2 million or CAD 0.08 per share includes a number of non-cash adjustments that are identified in the waterfall table and slide. The main item is the recognition of a loss and impairment through investment in associates of CAD 0.08 per share.
This is mainly the write-down of Alderon equity to 0 and of the loan to Alderon to CAD 1 million, which we believe is the amount we can recover in the current liquidation process where Sprott, a secured lender, is appointing a receiver to divest assets. Other adjustments are related to foreign exchange and loss on fair value of derivatives, CAD 0.04 per share combined, and an adjustment of certain deferred tax capital items. One final item to highlight before turning to the balance sheet. The board of directors declared a CAD 0.05 per share quarterly dividend, but you'll notice a slight change in the timing of the record and payment date, with record date being the end of the month and payment being mid-June.
We're changing our timing cycle as part of the process to implement a dividend reinvestment plan, which is a request we've had from shareholders and would allow shareholders to receive their quarterly dividend in additional Altius shares rather than cash. The new plan is still going through TSX approval and will be announced and implemented when the regulatory process is complete, and we hope to have this in place very soon. Finally, looking at the balance sheet and capital allocation. As you know, we sold a portion of our LIORC shares earlier in Q1 to add approximately CAD 15 million in cash. After payment of our preferred security distributions and common share dividends and CAD 2.6 million spent on normal course issuer bid repurchases, we ended the quarter with CAD 32 million in cash and cash equivalents, CAD 34 million in the value of the junior equity portfolio, and CAD 48 million in LIORC shares.
Considering the impact of the write-down of Alderon to zero, the junior portfolio value today is CAD 34 million, as the write-down in Alderon is offset by recent improvements in market value of some of the other holdings, particularly the gold-related names. Looking forward, our balance sheet is in good shape with CAD 85 million in term debt that we are scheduled to pay at a rate of CAD 20 million per year and 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. Our net debt to EBITDA ratio stands at two times versus three times allowable under our current debt covenant structure. We've been active on our normal course issuer bid with 255,600 shares repurchased during the quarter, and a further 231,000 purchased since quarter end.
We expect additional funding towards Tri Global Energy milestone-based investments of approximately $13 million U.S. over the next 12 months. Brian will have more to say on renewables, and now I'll turn it over to him.
Thank you, Ben and Flora. We have our first, hopefully non-annual virtual AGM coming up later today, so I will try to keep this brief while still leaving plenty of time for your questions at the end. During the last results call in March, we pointed out that the uncertainty level around royalty revenue guidance was higher than it's ever been. Production curtailments that we have experienced have been purely precautionary health and safety related, and in general, our assets have demonstrated excellent resilience thus far through this tough and unexpected test. However, given that risks to localized curtailment remain, and recognizing the continuing high degree of uncertainty regarding the near-term impacts to our various commodity price exposure, we have chosen to join the herd and withdraw our previously issued 2020 royalty revenue guidance. We will, however, continue to provide regular updates with respect to production and pricing changes.
This will be a year that almost certainly interrupts our multi-year trend of increasing revenue and EBITDA. We have taken the prudent steps that we believe ensure that our long-term assets and growth opportunities will not be jeopardized. Our long-term focus and alignment with global trends remains intact and positions Altius to resume its annual growth track record as the world ultimately recovers from the pandemic. Base metal production volumes in 2020, specifically those at 777 and Chapada, are expected to be relatively consistent with volumes seen in 2019. However, base metal prices trended lower in the first quarter. At Gunnison, where Excelsior Mining has suspended its commissioning activities for health and safety and liquidity preservation purposes, we currently presume no short-term contributions to revenue.
Royalty revenue at Voisey's Bay is expected to be subdued as the mining operation is on care and maintenance, and activities at the related Long Harbour processing plant rely upon available stockpiles. There is breaking news this morning, however, that a gradual ramp-up of the mine operations is about to begin. The Iron Ore Company of Canada, or IOC, mining complex in Labrador, is continuing to operate at relatively normal levels and to benefit from strong pricing for its high-quality iron ore production as a result of persistent, largely non-COVID-19 related global supply challenges. Whether these persist and iron ore continues its relative outperformance is a topic of wide debate. IOC has noted that demand for its pellet products has weakened and that it has therefore elected to reduce pellet production in favor of increased concentrate production.
This has the potential to cause a relative reduction in top-line sales revenue and related LIORC royalty payments from IOC as pellets typically sell at a premium to concentrate. The impact of the portion of distributable cash flow that LIORC receives related to its equity interest in IOC is expected to be less impacted on a marginal basis, given that the reduction in pelletizing also results in lower production costs. As Ben noted, we sold some of our position during the quarter in order to increase cash liquidity during these uncertain times. This remains as a lever that is at our disposal should things worsen beyond current expectations. Conversely, as a liquid royalty holding, we may well choose to add to the position again in the future. We have no plans either way at present.
Sticking with iron ore, I'll also add to Ben's comment on our Alderon write-down to say that while Alderon has unfortunately not succeeded in its efforts to fund the billion-dollar-plus development of the Kami Project and has lost control of the asset, our royalty interest remains intact and will follow the project on to its next owner. We remain believers of high-quality ore of this type, now backed up with more than CAD 200 million in evaluation markets compared to when we originally placed it with Alderon in exchange for shares, has a growing place in the cleaner future of global steel making. Forecast for long-term global potash demand growth remain positive. However, prices declined throughout the quarter.
In this price environment, rationalization of production to lower costs and recently expanded operations such as Rocanville and Esterhazy is expected to continue to positively reflect in volumes attributable to Altius, given the company's higher weighted exposure to these lower cost operations. We also note that many commentators believe that the recent signing of contract pricing terms with major Chinese customers after a long stalemate period will lead to a stabilization of prices, as has occurred previously following delayed signings. Alberta's electrical system operator saw near record demand in January due to extreme cold weather conditions. Strong demand continued into March until demand then began to taper as the pandemic impacted consumption and weather conditions normalized. Altius royalties related to thermal coal fire electricity generation have no pricing exposure component, with payments made on an inflation and index per ton basis.
Altius, through its subsidiary, Altius Renewable Royalties, continues to achieve significant milestones in the advancement of its innovative royalty structure related to the renewable energy generation sector, which so far seems to be one of the least impacted sectors due to the pandemic. During the quarter, Tri Global Energy announced the sale of a 180-megawatt solar project in Texas, to mark the third project royalty that ARR has received from TGE under its royalty funding agreement. ARR also announced a new CAD 47 million project portfolio-based investment with Apex Clean Energy, one of the largest wind and solar developers in the U.S. Apex controls a more than 21-gigawatt portfolio of wind and solar projects.
This marked ARR's second such transaction and largely completed the initial strategic goal of Altius to invest its remaining expected thermal coal portfolio royalty revenues into the creation of a replacement long-life renewable energy royalty portfolio far sooner than expected. The strategic objective of the business has now therefore been expanded, and ARR continues to advance several additional royalty investment opportunities. It also continues to evaluate the merits of working with strategic co-investment partners and of potentially spinning ARR out as a pure play public company, or both, in order to best optimize its growth potential. Within the project generation business, field work and face-to-face interaction with business partners has been curtailed. However, we continue to work closely with the management teams of our various junior equity portfolio investment companies to find ways to add value through the provision of technical and various other support where deemed helpful.
We are also actively completing desktop-based project generation activities with a goal of adding new early-stage mineral prospects to replenish the project portfolio following several years of strong sales to select industry partners. Normally at this point in my remarks, I would attempt to provide an update to our bigger picture outlook. Rather than do so this quarter, and in the interest of time, I will refer you instead to a shareholder letter that we've just posted to our website, which provides a detailed overview of how we currently believe we are positioned with respect to our long-term objectives. I will also take this opportunity to invite you to our AGM later today, during which a similar type of macro level overview presentation will be given. Well, that concludes my prepared remarks. We could maybe move to questions now. Thank you very much.
At this time, I'd like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad, and we'll pause for a moment while we compile the Q&A roster. Again, as a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. Our first question comes from the line of Craig Hutchison from TD Securities.
Hey, good morning, guys.
Hey, good morning, Craig.
How are you?
We're doing okay out here.
Excellent. I know you referred to your investor letter that went out this morning. I just have kind of gone through it this morning. Did want to ask a question just in terms of what you're seeing in terms of the market opportunities. I think you mentioned that you're not seeing the same opportunities you saw sort of post the 2014, 2017 sort of downturn. Just looking at some of these base metal names that are a little bit distressed, are you not seeing some opportunities to pick up some additional streams or royalty on some of those assets?
There's a little bit of deal flow around out there, but Craig, to be honest with you, most of those names that have stretched, their first and best move right now is to sell the gold component, not to go after the base metals. It's a fantastic market to try to sell gold interests in base metal mines. In fact, I would argue it's probably the most competitive opportunity that they'll find or that they've seen in a long time. The inverse, maybe someone with a gold mine with a base metal component is not going to like the terms that we have to offer them, I don't think.
Moreover, the key difference between now and 2016 that I tried to outline in the letter is that there just isn't that same level of overall balance sheet stress that we saw in 2016. I know there are a few examples where liquidity is a concern. Again, when you look at the industry or the sector collectively, there's a lot of cash around. I'd expect that either your investment banking or debt banking group or even the increase in M&A activity we're seeing with such strong balance sheets around will mop up any deal flow before somebody wants to sell off a permanent impairment on long life, world-class, strong cost curve position assets. We're there, we're ready. Again, I just don't think the macro conditions are like they were then.
I've got to basically call it like I see it and not make a suggestion to shareholders that there's all sorts of deal flow coming at us for the types of assets that we're looking for. It's just not the case. The one exception to that, other than getting into the renewable sector where we do see lots of opportunities, is that there's this little company which holds a huge portfolio of non-precious metals royalties that's trading at an incredible discount, and we're buying as much of that as we can. It's called Altius.
Okay. Perfect.
Thank you.
There's one other question from me. Do you anticipate any volume reductions from the thermal coal royalty business, just given the economic weakness we're seeing in Western power?
I think it is possible. It's really hard to gauge what the bigger picture impact is going to be in Alberta to what's happened to the oil sector. It's not just COVID. Some of these trends were already under establishment. There was great volume out of the coal-based power producers in Alberta during Q1. This quarter will tell a different tale, I expect. The real test is ultimately where does industrial output and oil sands production and whatnot go, in the post-COVID world. The other thing I'll point out, though, is that even in a world or a region that if Alberta experiences an overall decline in power requirements, at this point in time, the coal producers are very competitive and won't be the first ones to curtail.
Okay. Thanks. Those are my questions.
Thank you.
Our next question comes from the line of Carey MacRury from Canaccord. Go ahead, please. Your line is open.
Hi, good morning, everyone.
Hi, Carey.
Just had a question on renewables. If you could add a little more color on the opportunities you're looking at there. Is it doing additional deals with players like TGE and Apex, or is it doing more deal work with those specific players? Or both?
There's both happening right now. With TGE, we estimate somewhere around three-quarters of what we require in terms of royalties that stem from the project sale. Meanwhile, their overall portfolio of development of assets is bigger than when we started. That's a logical place for us to look for to continue to strengthen that relationship. Ultimately, in the longer term outlook for this business, that's what we'd really hope for, is that the investments we make with the TGEs and the Apexes of the world will ultimately turn into continuing deal flow. As their pipelines continue to convert, we'll continue to hopefully fund them and receive royalties as they move projects through.
At the same time, the two transactions that we've completed, and this is particularly true as a result of the recent Apex transaction, is that we're noticing a growing awareness of the structure and certainly a growing interest and acceptance of it. There are opportunities that we're actively engaged on that involve additional developers as well. We're just getting the feeling in the sense that royalty financing for the renewable sector is becoming a real thing.
Do you think you can deploy similar size investments in that space this year? Or is it going to be sort of you need to realize on what you've deployed so far before adding significantly to it?
No, I think there is deal flow before us right now that would be multiples of what we've already deployed. The question becomes, how do we fund such a level of growth? In the prepared remarks, I talked about the fact that we're initiating discussions with strategic partners to co-invest directly at the ARR level, and we also continue to advance plans and thinking around a potential IPO. The driver there is just once the ARR achieves scale and gets closer to meaningful cash flow build up, we believe that there's a chance that it could attract a cost of capital that's significantly lower than Altius, the parent company. All these things are very active. I would say, in fact, has accelerated during the COVID period, not slowed at all. This is one sector that, if anything, activity seems to be picking up in rather than slowing.
Ben mentioned you split out the renewables revenue this quarter. Just given what has been approved so far, do you have any sense on what that run rate would be through the end of the year? What the exit rate will be in terms of revenue?
The revenue right now in renewables is fairly modest because all the TGE and Apex contracts, they'll be 18 months to 24 months before that comes online. It's fairly small. Close to half a million is a rough guess without looking at the figures. I think the point of segmenting it was to recognize the value or the size of the investment we've made and the fact that we think there's huge potential and growth there as well. The revenue will come later.
We're expecting the first of the deals from the TGE transaction, assuming no on-the-ground type COVID delays to commission in the second half of next year. From there, it should be a relatively steady ramp-up. We're still a year and a little bit away from seeing that really start to jump into our revenue line.
Okay, great. Thanks, guys.
Again, as a reminder, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. Our next question comes from the line of Brian MacArthur with Raymond James. Go ahead, please. Your line is open.
Good morning. My questions are also renewables. One of them was the run rate, so that's been answered. Just listening to you talk then, philosophically, if cost of capital is cheaper in ARR, but as you said, Altius stock is cheap. How do you balance going forward share buybacks versus investing in ARR, which, as you said, is probably a pretty good growth thing that you want to get into right now? Do we just assume that ARR will ultimately become self-funding and if free cash flow on Altius buy back shares at these levels? Is that the right way to think about it?
I don't think you're too far off in that. ARR's opportunity, the scale of the opportunity is not something that I envision Altius, the parent, is going to be able to fund from its cash flows. We're certainly not going to use equity to do it. It basically comes down to direct ARR-level equity or as it mature other forms of leverage or whatnot to fund its overall growth. Again, the scale of the opportunities we're seeing here and our belief that it's going to be very important to continue to maintain our first-mover advantage means that ARR is going to have to stand on its own from a capital-raising perspective and probably sooner rather than later.
Great. Thank you.
Thank you.
There are no further questions at this time. I'd like to turn the call back over to Brian for some closing remarks.
Again, just to repeat the invitation to everybody to join our AGM later today. I believe that the contact details can all be found on our website.
The website's the easiest place to go to chime in, yeah.
Well, thank you everyone for your time, and I look forward to speaking again in a few months. Well, this afternoon first and then in a few months. Thank you.
Thank you.
This concludes today's call. You may now disconnect.