Good morning, and welcome to the Altius second quarter 2018 financial results call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press the pound key. Please also note that this event is being recorded. I would now like to turn the conference over to Flora Wood, Director of Investor Relations. Please go ahead, Ms. Wood.
Thank you, Brian. Good morning, everyone, and welcome to our Q2 conference call. Our press release and filings were done yesterday after the close and are on our website and on SEDAR. This event is being webcast live, you'll be able to access a replay along with the presentation slides on the webcast and added to our website. Brian Dalton, CEO, and Ben Lewis, CFO, will both be speakers. For the Q&A, we have with us Chad Wells, VP Business Development, and Stephanie Hussey, Director of Finance. We've switched up the order today. Ben's going to be speaking first on the financials, he'll then turn over to Brian for his overview and a look ahead. After Brian, we'll go to the Q&A. Getting started, on slide two, we have the forward-looking statements.
This applies to everything today, both in our formal remarks and during the Q&A. With that, I will hand over to Ben.
Thank you, Flora. Good morning, everyone. We had a good quarter with CAD 16.5 million in royalty revenue, CAD 13 million in EBITDA and earnings per share of CAD 0.12 per share. Our earnings included a couple of non-cash items that I should point out, including a gain of CAD 1.9 million on the fair value adjustment of derivatives, offsetting this, a CAD 800,000 one-time charge to extinguish our old debt facility. This morning, I'll mainly focus on a few changes arising from recent business activities, our debt refinancing, and the resulting liquidity improvement. Starting with the income statement, you'll notice that we began consolidating potash royalty revenue after we acquired an additional stake in the Potash Royalty Limited Partnership near the end of March.
We now show that potash royalty on the face of our income statement and also report a non-controlling interest in the statement of earnings, representing the earnings of the other 9% minority holder of that potash partnership. Excuse me. This accounting change was effective for the full quarter and makes our actual revenue, earnings, and cash flow just a little more transparent to the financial statement user. Not always the result we get in our world of infinite accounting rules, but a refreshing change. Note that we still report our thermal and Met Coal revenue in earnings from joint ventures, since these royalties are held in partnerships that we jointly control. You'll still have to dig a little deeper to get our true royalty revenue figure. I'll refer you to the MD&A and the segmented information, note 16, in the financial statements for the full picture on royalty revenue.
Reflecting on potash again for a moment, ignoring the effect of the acquisition I just mentioned, second quarter potash revenues are still up 24% from the comparable period in 2017, with volumes up 15%. Very nice. Thermal coal revenue of CAD 3.3 million this quarter is down around CAD 800,000 from last quarter, with most of that change coming from Sheerness mine sequencing changes as we move on and off higher royalty grade lands. On a six-month basis, you'll see coal royalty tons down 24.5% over the period we're comparing last year, but revenues are actually up year-over-year as we've been on higher royalty rate lines. Looking at costs, we have higher depreciation and amortization in the second quarter compared to the first quarter with higher sales, but lower on a year-over-year basis.
The difference is due to lower production units from the 777 mine, offset by a higher contribution from potash, where depreciation on the potash assets is spread over a much longer reserve life. First half G&A costs were higher than normal, with some one-time costs relating to the potash acquisition. We had professional fees of roughly CAD 1 million in the first half relating to due diligence, the potash acquisition, and other legal fees. G&A in the second half of the year should be lower and allow us to end the year closer to the CAD 6 million annual level. Finally, on the income statement, income taxes were lower than in the first quarter, averaging out something closer to our statutory rate in the first six months. On the balance sheet, you'll notice that the potash consolidation moved a couple of things around when you compare to our December balance sheet.
Our royalty and streaming interest assets increased by about CAD 123 million related to the potash royalty assets, and the joint venture asset line decreased by the cost of our original investment, all as a result of the switch to consolidation accounting. On the liquidity side, we ended the quarter with CAD 52.2 million in cash after our term debt repayment on the Yole facility. Going forward, our new term debt facility will require principal repayments of CAD 5 million each quarter, which is a comfortable repayment level given our diversified royalty portfolio and also given our project generation model, which sees very little in expenditures on any one given project. We have a slide in our presentation addressing the change from the former credit facility to the current, I'll summarize for you.
We upsized by CAD 100 million, extended the term by five years until June 2023, and obtained more flexibility to go after development stage assets, which will enable us to grow our business. The better credit terms are the result of improved revenues as we continue to grow the company, our proven repayment history, and our continuing strong relationship with our lenders. Excuse me. For those of you modeling our expected interest expense, we improved the premium paid over BAs on the floating portion. More importantly, we chose to lock in interest rates for 80% of the term debt at an interest rate of approximately 5.4%. Considering the expected rate of return on the potash assets that we acquired with the credit, we're very comfortable locking in at this stage.
Our available liquidity at quarter end is CAD 152 million, counting cash and undrawn revolver, and does not take into account any of the value of our equity investments, which all combined could add another CAD 137 million to our potential liquidity. We declared a CAD 0.04 dividend to be paid in September, and still have our normal course issuer bid in place to buy back shares at prices below a threshold, which we revisit quarterly. To sum up, we had a good quarter for cash flows and earnings. We have a strong balance sheet and liquidity that gives us flexibility to pursue both cash flowing and development stage opportunities as they become available. We'll continue to put emphasis on paying down debt. Now I'll turn it over to Ross.
Thank you, Ben. Good morning, everyone. Thank you for joining us. Our second quarter saw improved royalty revenue relative to the first quarter and to the prior year comparable quarter. The improvement year-over-year was mainly attributable to higher volumes, especially in potash, but also Chapada Copper. Our royalty revenues have been on a strong and steady uptrend since the industrial commodities market turned around in early 2016. This is the first quarter since then that saw more of the benefits come from organic volume growth than price improvements. I believe this is a strong testament to the quality of their work during our bear market buying spree in selectively identifying projects with underlying extension and expansion-based option value potential. As you will hear in the following updates, we received a lot of good news of this type during the second quarter.
Chapada Copper volumes during the first half of the year are running well ahead of last year, Yamana has stated that they expect to exceed guidance of 120 million pounds, as recent plant investments continue to deliver improved metal recovery. In addition, it has initiated studies to consider potentially significant capital investments in new plant and mine capacity additions. Yamana is also having great exploration success, identifying higher grade deposit expansions and in defining new potential deposits within what we believe is now emerging as a district rather than just a deposit per se. Our stream exposure at Chapada encompasses the entire district scale package held by Yamana and has no ultimate cap. Our other current base metal revenue comes from 777 Hudbay's mine in Manitoba, where we saw modest declines in both copper and zinc production as the working extended deeper and into more challenging mining areas.
On the positive side, however, Hudbay indicated that it is now expecting an extra year or so of production, extending the mine life to late 2021 based upon its most up-to-date mine plan, while also stating that it continues to examine options for further incremental mine life extensions. Vale announced a cobalt stream financing to provide capital towards the new development of underground deposits at Voisey's Bay that will replace the old open pit deposit over the next few years and that will add approximately 15 years to the project mine life. This royalty has not been paying over the past couple of years as a result of Vale's assertions around the deductibility of processing plant related capital costs, and so may have been forgotten by many of you.
We disagree strongly with the Vale position, and a trial to make determination of this issue, amongst other historical underpayment assertions, is scheduled to be heard in Supreme Court of Newfoundland and Labrador next month. This was our first full quarter of incorporating the recently increased potash royalties ownership levels. Our belief in a long-term increase in global requirement for potash fertilizer and of prices currently sitting at below long-term incentive price requirements was encouraged by recent announcements from our royalty counterparties, Nutrien and Mosaic. They both spoke to the very strong and broad-based global demand, and in the case of Nutrien, this was accompanied by increased corporate-level potash sales guidance, presumably facilitated by further ramp up at Rocanville. Both also spoke of improving prices, with data from Mosaic indicating various regional gains in the range of 15%-25% relative to year ago levels.
These developments, together with the increased ownership levels, allowed potash revenue to overtake thermal coal as our second largest commodity exposure and to now represent 23% of our diversity mix. Thermal coal revenue was lower in the second quarter relative to both the first quarter and the prior year comparable quarter, but was well within the broader range we have been experiencing after sales timing variability and mining progression across lands with varying royalty levels are considered. The lower revenue this quarter was largely attributed to mine sequencing at Sheerness. Met Coal revenue from Cheviot, part of Teck's Cardinal River complex, was relatively flat this quarter as better prices offset lower production volumes. We did, however, welcome an announcement from Teck this quarter that they've begun studying the development of another resource area that could extend the mine life by up to nine years, taking it out to 2029.
The potential new mining area under study is on our royalty land. Our indirect royalty exposure to IOC, held through our shareholding in Labrador Iron Ore Royalty Corporation, turned in a very disappointing quarter relative to quarter one and a comparable quarter last year. This was as a result of a nine-week, but since resolved, labor disruption at the mine. This was particularly unfortunate given the further widening of quality premiums that has been seen in the market. Of particular interest in this regard is the increasing relevance of low alumina content determining premium iron ore pricing. IOC products are the very best in the world by this measure, in addition to their high relative iron content. It is also worth noting that IOC expects to begin mining from the new Wabush 3 pit later this year as part of its continuing ramp-up of recently completed expansions.
Keeping with iron ore, in July, Champion announced their first quarter results since restarting Bloom Lake and shipping first concentrate April 1st. In the quarter ended June 30th, while still ramping up to full capacity, they had sales of CAD 120 million, operating cash flow of CAD 38.6 million. They also disclosed that their sales of 1.8 million metric tons of high-grade 66% iron concentrate were priced at a premium of 35% to the benchmark 62% index. They also announced the beginning of studies to explore further capacity expansion.
This is an excellent result in our estimation, which not only bodes well for our Champion convertible debenture interest, but also for increasing confidence in the merits of other potential Labrador Iron Ore Trough development opportunities, allowing me the opportunity here to highlight Alderon Iron Ore and its Kami Project, which is located next to Bloom Lake and IOC, and in which we have a large equity holding and an underlying project royalty interest. If it sounded like I just said the words expansion, extension, new development, ramp up a lot in that overview, it's because I did. Each of these words means billions upon billions of capital expenditures, either made already or to be made, of which we have no share of the cost, but a full share of the benefits. This is the power of the lopsided option value equation associated with our diversified mining royalty model.
We've been saying for some time that with the improved broader cyclical sentiment from when we made most of our major royalty acquisitions, value in pre-stage royalties is becoming harder to find. The more recent junior mining equity pullback has led to improved deal flow in pre-production stage opportunities. It is quite remarkable in some of the situations that we were reviewing just how nonexistent the broader market is as an investment competitor, in fact. We have therefore been quite active during the quarter in negotiating for royalty and equity interests in promising projects and expect to be able to close on some of these smaller deals in the second half of the year. Along this vein, during the first half of the year, we invested a total of CAD 7 million, both directly into and alongside Lithium Royalty Corporation.
LRC is a private company in which Altius is a roughly 12% shareholder and holds one board seat. Thus far with LRC, we have signed a purchase and sale agreement on one royalty, with another in advanced discussions. The LRC team is comprised of several experts within the still very much emerging lithium mining sector, and this modest investment allows Altius to benefit from their knowledge and to position and learn as we expect rapid evolution of transportation electrification trends. We also continue to progress our efforts to identify opportunities to develop a portfolio of renewable energy-based royalties under a platform being referred to as Blue Sky Renewable Energy Royalties, that we have co-founded with a U.S.-based team of renewable energy investment and development specialists. Several discussions are currently underway with potential counterparties that are either developing new projects or operating existing projects.
Altius also continues to consider utilizing the residual phase-out years of its coal-based electrical generation royalties as a funding source to create the long-term renewable energy portfolio. My last comments before we open it up to questions are on our project generation business. Over the past two years, we have vented out 41 projects and have other transactions pending. Contrary to what you might guess looking at the TSX Venture Exchange, demand for exploration projects is the strongest we've seen in our history, as both juniors and majors recognize a looming crisis in the industry due to the acute lack of exploration investment in the sector from 2012 onwards. We now have 27 positions in our junior equity portfolio, many of which have active drill programs underway this year.
Some of this drilling has been turning up exciting results that you may want to keep track of, given the potential for low-cost value creation for Altius shareholders. Our portfolio information is available through the website for those that wish to dig deeper. We talked about Evrim's high-grade gold in trenches in Mexico last quarter as a highlight. This time, the highlight is perhaps a toss-up between the infill drilling results at Adventus' El Domo deposit that has identified a thick and extremely copper-rich core zone, and results from Sokoman Minerals, who announced drill results in three holes on the Moosehead Gold Project in Newfoundland that included a reported intercept of 11.9 meters of 44.96 grams per ton gold, and this was followed by a strategic equity financing. Altius is a large shareholder of both companies and also holds a royalty related to the Moosehead Project.
Finally, we continue to make progress with respect to creating strategic partnerships and the IPO of our Lynx Diamond discovery in Manitoba. We should have lots of news to report on this in the coming weeks in advance of beginning first drilling programs this coming winter. That wraps up our formal remarks, and we'll turn back to the operator for the Q&A. Thank you.
Thank you, sir. Ladies and gentlemen, at this time, if you would like to ask a question over the phone lines, press star and then one on your telephone keypad. If your questions have been answered and you wish to remove yourself from the queue, simply press the pound key. Once again, ladies and gentlemen, as a reminder, that is star and then one to ask a question. Our first question will come from the line of Jacques Wortman with Eight Capital. Your line is now open.
Hi, good morning. A very compelling overview, Brian. Thanks very much for that. One quick question from me. Can you speak to how you see Blue Sky kind of unfolding here in terms of opportunities you might see or maybe in terms of an initial rough timeline? Thanks.
It's hard to put a timeline on things. We're introducing basically a new type of capital source into the overall capital stack for that sector. A lot of the work that's been happening has just been educating the operators and developers about how royalty financing might work. I have to say that over the past few months, we've had quite a lot of success in introducing that. There are definitely some dynamics at play within that space right now that we believe make this kind of financing something that is going to play an increasing role. Lots of term sheets out there getting beaten around. Again, can't put a timeframe on it, but again, quite optimistic that there will be deal flow here that will make this ultimately become a real business for us.
I think when you first announced it, you had said that there was one project that was going to be vended in from your partner right from the get-go.
Yeah.
Maybe you can't speak to that just yet because I don't know if it's actually closed the whole JV structure, but anything you can say about that, and is it a paying opportunity?
The guys that we're working with as partners, really the experts that are going to be charged with a lot of on-the-ground deal hunting, have a couple of quite small royalties in their portfolio right now. One is a hydro royalty with a solar component to it. These aren't going to be big deals that move the needle dramatically. They're assets within their business that are coming in as part of their joining of the whole. They're starting royalties, but they're much smaller than what we'd anticipate being the target size going forward, on the order of hundreds of thousands a year, not millions.
Thanks very much, Brian, for that. Thanks, Ben, for the overview on the financials. Great quarter.
Thank you.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question over the phone lines, press star and then one on your telephone keypad. Our next question will come from the line of Mark Glasser with Inter-American Trading. Your line is now open.
Good morning, gentlemen, and my acknowledgment of the wonderful work you're doing. To get on some of the old things, I'm sure that you're watching the iron ore situation in Labrador very closely. I guess what happens focuses now on Champion. If you could give a little insight as to what you're seeing, also the status of the Rio Tinto project. I think it's Goethite Bay that's north of Carol Lake. Also the prospects for Bitterroot now. I believe that Altius retained one of the properties in Ireland and the other ones are Adventus . If you could say anything about Ireland, that would be good. Again, thank you for the good work.
Thank you very much. I'll try to address all those parts. First on iron ore, yes, of course, it's something we watch very closely. In fact, have been doing so for the best part of 20 years. What's happening with Champion and the whole Bloom Lake restart is extremely important. Obviously, the Bloom Lake project practically brought Cliffs down a few years ago. It's got certainly a mixed taste in the market's mind. I guess a lot of capital was sent to money heaven on that project. It's really gratifying now to see, first off, what's evolved in the marketplace and how the market has really just developed directly seeking more and more of exactly the type of product that comes out of Labrador.
To watch the Bloom Lake project scale back, done a little bit less, maybe a little less frantically than in its first iteration, just being carefully brought forward. It's really fun to watch it play out right now. Again, the implications for Alderon as we watch that project evolve into a successful mining story again, I think are pretty profound. IOC, similarly, market is exactly seeking what it produces. When you consider the new premiums that are being applied for low alumina content in addition to the high iron ore content, this is some of, if not the very best material available in the marketplace right now. Goethite Bay, for those who don't know, is a project that we optioned to Rio Tinto during the last cycle. That resulted in a pretty significant discovery just to the north of the IOC operations.
We haven't seen much in the way of activity there in the last little while. The deposit has been broadly defined. It's not immediately in the crosshairs for development that we can see. Right now, IOC is developing its Wabush 3 pits to help feed its ramp up. Again, in the very long term here, we anticipate that Goethite Bay could very much form part of the mining plan at IOC. Whether that's years or decades away, I can't really speculate. What was the next part of the question?
Bitterroot and Iron Road.
Bitterroot. Bitterroot, I don't have a whole lot to say. We have a pretty small interest there. Most of you would know that we took a controlling position in their nickel project in Michigan, which basically covered a lot of the potential extensions of the geology related to the Eagle deposit, which is being mined by Lundin right now. We continue to work away on that project, geophysical surveys, and just developing targets. It's part of a broader initiative that we have underway, putting together projects of high potential nickel sulfide projects in several jurisdictions. We're quietly beavering away on that. We're pretty confident that at some point, the nickel market will come our way, and we'll be able to show just how much we've done to get ready for that. Don't underestimate our patience in these regards.
Finally, the last question was, did we hold back a project from Adventus in Ireland? I wouldn't exactly phrase it that way, but we had a second initiative on exploring for zinc in the sedimentary basins in Ireland. We also had an effort underway to look for a pretty unique idea, really, for Ireland, and that was the thoughts of red bed copper in the very extreme southern part of the country. That's a relatively early stage project that is now being funded and advanced by First Quantum. Again, that's wholly owned by Altius, a joint venture to First Quantum. Adventus, that spin out was all related to the zinc assets in Ireland. Mark, I hope I covered all of the questions there.
Thank you. Thanks, keep the good work up.
Thank you.
Thank you. I'm showing no further questions in the queue at this time. Now it's my pleasure to hand the conference back over to Ms. Flora Wood, Director of Investor Relations, for some closing comments and remarks.
Thank you, Brian. We'd like to thank everybody for dialing in. If you have any other questions, happy to talk to you after the call. We'll talk again in the quarter.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody have a wonderful day.