Good morning, ladies and gentlemen, and welcome to the Altius Minerals Corporation second quarter 2023 financial results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, 9th, Wednesday, August 9th, 2023. I would now like to turn the conference over to Ms. Flora Wood, VP, IR and Sustainability. Please go ahead.
Thank you, Hilda. Good morning, everyone, and welcome to our Q2 conference call. Our press release and interim 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 a replay of the webcast, along with the presentation slides that are on our website and on the webcast site. Brian Dalton, CEO, will speak on the call, and we have Stephanie Hussey, VP Finance, speaking today as she's substituting for Ben Lewis, our CFO. We also have Lawrence Winter, VP Generative and Technical, who many of you know, he's here for questions you might have on Silicon or on project generation. The forward-looking statement on slide two applies to everything we say in our formal remarks and during the Q&A session. With that, Stephanie is up first. Go ahead, Stephanie.
Thank you, Flora. Good morning, everybody. Royalty revenue for Q2 2023 was CAD 18.7 million, or CAD 0.39 per share, compared to CAD 28.6 million, or CAD 0.61 per share in Q2 2022. Adjusted EBITDA followed the trend of revenue in the second quarter. The mineral royalty segment had an EBITDA margin of 81%. Both revenue and Adjusted EBITDA were impacted by lower commodity prices, primarily potash, and the scheduled closure of the 777 Mine at the end of Q2 last year. The prior year quarter also included a positive thermal coal adjustment of CAD 1.6 million relating to 2021 sales. Q2 2023 adjusted operating cash flow of CAD 14.1 million or CAD 0.30 per share, compares to CAD 16.6 million or CAD 0.35 per share in the same quarter last year.
The decrease follows the trend of lower revenue, as well as higher interest paid and some working capital adjustments. Our balance sheet is strong, and we remain focused on our capital allocation strategies. During the quarter, Altius received CAD 8.9 million from Lithium Royalty Corp as a return of capital distribution to the pre-IPO shareholders. We expect to receive a further combination of cash and shares over the next 24 months, as described in LRC's prospectus. We made CAD 2 million in scheduled principal repayments on our term debt during the quarter, paid cash dividends of CAD 3.6 million or CAD 0.08 per share to its common shareholders, and issued approximately 9,800 common shares valued at CAD 200,000 under the Corporation's dividend reinvestment plan.
The Board of Directors approved an CAD 0.08 dividend that will be paid to shareholders of record on August 31st, with a payment date of September 15th. The Corporation repurchased and canceled approximately 98,000 common shares under its normal course issuer bid for a total cost of CAD 2.1 million during the quarter. Our current liquidity consists of CAD 25 million in cash at the end of Q2 and CAD 94 million in unused revolver room on our credit facility. ARR held cash of $41 million at quarter end. The combined term and revolving credit balance was CAD 116 million, while the market value of our holdings in Labrador Iron Ore Royalty Corporation, ARR, LRC, and the PG equities portfolio stood at a combined total of CAD 387 million.
Subsequent to the quarter, Adventus announced a $9 million financing, of which $4 million was provided by Altius in the form of a convertible debenture. The debenture bears interest at 10% per annum and is set to mature by December 31st this year. Altius will have the right to convert the principal and the interest into shares at any time. If the loan is not repaid by maturity, Altius may convert the outstanding amount into a 0.63% NSR. We currently hold a 2% NSR on the Curipamba-El Domo project , which is a high-grade copper-gold project in late-stage permitting. In addition, ARR funded CAD 9.9 million into GBR, representing its 50% portion of new renewable royalty investment deployment. With that, I'll turn it over to Brian.
Thank you, Steph. The highlights for me this quarter relate mainly to several items of option value realization progress from pre-production stage assets. These include confirmation that the Silicon project represents a new world-class gold district discovery, continued positive progress from the Saúva copper discovery within the Chapada district, and encouraging indications for metallurgical test work at Champion's Kami iron ore project. Each of these assets hold the potential to add significant long-term royalty revenue growth to our portfolio, and this will come with no additional cost or equity dilution impacts to Altius shareholders.
At Silicon in Nevada, an exploration target of 6.8 million ounces of gold was announced by AngloGold Ashanti for the Merlin deposit, while also noting that the deposit remains open in most directions for further expansion. This is in addition to the 3.4 million indicated and 800,000 inferred gold ounces that were re-reported for the Silicon central deposit earlier this year. AGA also announced that it is now evaluating both deposits on an integrated production basis, given their close proximity, referring to it as the expanded Silicon project. Indeed, we speculate that with time, it may prove that Merlin and Silicon are connected. We understand that AGA is targeting completion of a formal resource estimate for Merlin and a concept study for the integrated project by year-end.
We will be particularly keen to learn what optimized production level range will be determined from that work, as this factor now represents one of the largest remaining sensitivities in estimating the value of the royalty. The 1.5% NSR we hold, was originally generated through an early-stage exploration funding agreement completed by predecessor company, Callinan Royalties. That cost around CAD 250,000. We also note that dates have now been set in early April of next year for a BC-based arbitration hearing to determine the extent of the lands that our royalty applies to.
If our contention that it extends to include AGA's full consolidated land package, rather than just the lands hosting most of the Silicon and Merlin deposits, holds up, then several additional known deposits with a current combined endowment of more than 4 million historical ounces in various categories, plus considerable further exploration potential, will be added to our royalty inventory. At Kami, we understand that Champion remains on track for completion of a feasibility study at around year-end. This stock study is targeting the production of high purity, DR pellet feed material, which is both relatively rare and projected to be in significant deficit in coming years. This is owing to the ongoing transition of the global steelmaking fleet to electric arc furnaces from traditional coal-fired blast furnaces. EAF furnaces can only input DR-grade iron ore and scrap steel.
During an investor presentation that Champion recently delivered, it commented that its preliminary metallurgical findings suggest that Kami ores are amenable to DR-grade concentration. Our cost to originate the Kami Project royalty, net of recoveries to date, is actually negative. While no new drilling results in the high-grade Saúva copper discovery at Chapada were reported this quarter, Lundin did note in its investor conference call that, and I quote, "In February, we announced the maiden indicated resource estimate for the Saúva discovery and view it as the first of many iterations of increasing mineral resource estimates to come. We are very excited about this discovery and will continue to evaluate potential expansion opportunities to best exploit the significant mineral resource base and the growing Saúva deposit." End quote.
We recall specifically viewing the Saúva Formiga area as an exciting target for future exploration and option value realization potential at the time of our due diligence and acquisition of the Chapada copper stream back in early 2016. It has been neat to see it play out. In addition to its LRC equity position, Altius also holds minority partnership interest in three LRC royalties, one of which commenced production during the quarter, two others are expected to begin operations later this year or early next year. This should introduce the first-ever royalty revenue related to lithium production to our portfolio.
At our Investor Day earlier this year, we went to considerable lengths to explain the potential option value of these developments, amongst several others in our existing portfolio, and reiterated how maintaining discipline around external growth opportunities was particularly critical for us at this time as a result, and particularly so for any situations that might involve corporate-level equity dilution. Our conviction has only strengthened in this regard since then. Quickly now on the operating stage portfolio, the main factor impacting revenue this past quarter, at least relative to the year-ago quarter, was generally lower commodity prices. Production volumes were also challenged by the impacts from plant maintenance issues at Voisey's Bay and Chapada, forest fires in Labrador and Quebec that limited IOC production and sales, and from constrained potash logistics. These volume issues have now been mainly resolved, with better second half signal at most operations.
On prices, we do note some stabilization and modest improvements recently for some, although commodity markets are still acting very choppy, and most prices remain well below our estimates of mid-cycle incentivization levels. ARR continues to ramp up its number of producing stage assets and also added another large developer platform to its portfolio this quarter. U.S. merchant electricity prices, which were quite weak in the first half as gas prices fell, are more recently being positively impacted by extreme heat conditions and a surge in power demand. Longer-term PPA or contracted prices continue to move up nicely in response to industry cost pressures. Renewables team at GBR ARR are seeing strong royalty financing deal origination activity as competing forms of capital, such as equity and debt, remain challenged.
At Genesee, Capital Power has announced delays to its natural gas-based, repowering plans, and that it now expects to eliminate coal burning in 2024, as opposed to towards the end of this year, that was expected earlier. On potash, Nutrien has announced that it is pausing investment around its expansion program, citing current market conditions and capital allocation prioritization decisions. We continue to believe that this expansion will be required in the market as global demand growth trends reassert themselves following the recent period of unusual volatility and market supply uncertainty. Mosaic, on the other hand, announced the completion of a meaningful expansion of Esterhazy's nameplate capacity. Lastly, the PG business is also quite busy on the deal-making front, with several project deals recently completed and in the works that are resulting in new early-stage royalties and junior equity positions being added to the portfolio.
Despite tough exploration market conditions, we expect option value exposure to reach almost 300 kilometers of drilling this year in our PG business. This is being entirely funded by our partners. With that, I will open the floor to questions. Thank you.
Thank you. We will now begin the question-and-answer session. If you have a question, please press star followed by one on your touchtone phone. You will hear a tone prompt acknowledging your request. If you would like to cancel your request, please press star two. Please ensure you lift the handset if you are using a speakerphone before pressing any keys. We have a question from Carey MacRury from Canaccord Genuity. Please go ahead.
Good morning, Brian, and everyone. Maybe just a question on the balance sheet. You know, just given where interest rates are, can you remind us what you're paying on the revolver? Is there any, you know, desire to pay down any debt quickly? I know the debt level is not that big in the grand scheme of things, but just your thoughts on the balance sheet.
Steph, do you have that...?
Yes. Yeah, we're paying about 7.5% carry on the revolver.
What would the term amount be locked in as?
The effective interest rate on the term is, like, 5.5%, I think, right? With all the costs baked in, yeah, and the swap.
Yeah. Carey, I guess, as far as you know, how aggressive we might want to be with that, it doesn't cost us. I mean, we're obviously watching what's going on with interest rates right now, like, you know, for example, would we raise equity to pay down debt or no? I'd actually probably, just in terms of prioritization, I think there's a better argument right now to be made on the buyback than there would be for, you know, discretionary debt repayment. Again, we'll just have to keep an eye on where rates go and, and how we see the ongoing pricing of the company in the market rather than through the value. It's, it's sort of something we watch almost daily.
Maybe just switching to potash. I mean, I think potash is a lot weaker than probably everybody expected. Just wondering what your thoughts are on what's going on in the potash market and how that's going to look maybe later this year or into next year.
Well, it's a good one, good question. I, I think part of it is that it certainly seems now that more production is getting out of Eastern Europe than probably was originally expected would. I mean, the channels that's getting out at are, are uncertain, but there's obviously product finding its way to markets. You know, that said, you know, the price volatility has probably been the biggest factor that's impacting demand lately. You know, it's kinda like catch the falling knife a little bit and people being fairly hesitant. That said, it does seem that inventories are getting pretty, pretty precarious at this point in time. Hard to make the call, but it does look like there may be some bottoming action in the, in the prices right now. Long term, I, I think everything is completely intact.
We're still eating the same amount, and the same amount is required, and deferral ultimately had to be met with overapplication. You know, big picture here, there's really no shift. There's just so much volatility that I think it's making it difficult for everyone, and particularly farmers, to make a call on, on when to really act. Again, main point here is that nothing has changed in the big picture. There are, there is demand growth, and there is not enough supply currently being incentivized to meet that demand. Story is intact.
Okay, great. Thanks. I'll pass it on. Thanks, Brian.
Thank you. Our next question comes from Craig Hutchison from TD Securities. Please go ahead.
Hey, good morning, guys. Hey, Brian, you mentioned that there'll be a couple more payments post the Lithium Royalty Corp IPO. Nice to see you got CAD 9 million in the quarter, and there's a couple more in the next couple of years. Can you just give us a sense of, you know, how much cash and kind of shares you're expecting to receive in the next 2 years, and maybe the timing on that, if you have it?
I don't have that on the top of my, top of my head, to be honest with you. Where you can source that is it's laid out in schedule in the recent, IPO documents that LRC published. That sort of release schedule for the, the share tranches, as well as potential additional cash payments, is all to be found right there. Sorry about that.
No worries. Just on the Silicon Gold Royalty, you know, obviously, great to see the expansion potential there. You know, what's your best sense in terms of potential startup of production? I know, obviously, the pre-feasibility study is coming out year-end, but— Maybe just a sense of where do you think the production starts in terms of those targets, based on what, AngloGold set in the past?
I think the challenging part of that is they're still trying to get their arms around this animal. It's, you know, it's hard to make a definitive call and say, This is it, we're going to engineering right now. The resource continues to grow at this kind of a pace. I mean, I note that because they've integrated Merlin and Silicon now, you know, they're not talking PFS, they're about the sort of concept study, PEA, and I think that's a function of just the fact that Merlin is not at a, a proper resource category. There's, you know, there's limit to how far you can go with, with studies there. I think end of 2025 is when they're talking about for startup at the North Bullfrog zone out to the northeast. Yeah, I don't know.
I think we'll have to wait till towards the end of the year to, to get a better handle on, when they're actually going to get to the point with delineation, drilling, and resource modeling to, to start to, you know, ballpark when, when construction and, and production could start. I mean, having that date pushed back because the resource continues to grow and the scale of the ultimate scale of the operation, likely continues to expand is, is a great reason for a delay. It's too, too early to call, this thing is growing really quickly. It's a monster.
Okay, one last question for me. Just you mentioned there's the challenging markets for the exploration development front, which I agree. Are you seeing opportunities for additional royalties there? You mentioned you've got an active portfolio in the project generation side, but outside of that, are you seeing opportunities for, you know, creating new royalties here in this market environment?
Do you mean, you know, at the exploration stage or-
Yeah.
Further out?
Yeah, exploration stage, and further out, if you can elaborate on that?
Yeah, look, as far as the exploration stage opportunities go, I mean, we're, we're just basically monitoring everything that's going on out there in exploration land, and, and anything really catches our eye, you know, we do get in touch and make proposals, usually combined sort of equity, early-stage royalty type, type investments there. I can't really say that there's lots that's on our plate right now. There's a few things that we're watching pretty closely and a few discussions underway, but it's. Maybe as we get into the, the fall and, and, you know, a lot more exploration results flow starts to happen.
Obviously, the longer it goes here with equity markets for juniors sort of being closed, the more opportunity that we're gonna see, just because we're one of the few conduits to exploration funding that exists when equity markets close. We're poised.
Okay, great. Thanks, guys.
Thank you, sir.
Thank you. Your next question comes from Brian MacArthur, from Raymond James. Please go ahead.
Good morning. My question has to do with Silicon as well. In the MDA, you talked about looking at value creation alternatives for that royalty, including a full or partial sale or swap transaction for non-precious metal royalty. I got three questions related to that. How do you think about the timing of that, given, A, as you mentioned, it's, it's hard to know exactly how big this is, and B, you probably won't get clarity now till mid-2024 in the lawsuit. Second part is, when you say non-precious metals, would you, would, would that include renewables or lithium? Or are there, are those sort of sanctioned in the, i.e., you can't do it, they'd all have to go through ARR on the renewable side or Lithium Royalty Corp on the lithium side.
I guess then the final point is, I mean, if this gets as big as you maybe think, is there even large enough base metal royalty opportunities out there to effectively redeploy the capital?
Yeah, I guess the way I'll answer that is that, you know, just in terms of timing for that kind of a decision, I think you zoned in on two key factors. The arbitration is obviously very meaningful, but it's a pretty big delta in total contained ounces, depending on how that, that goes. I guess the other big factor that, that could really impact on valuation, and this is both from, you know, our sense of what it's worth and what potential buyers might think it's worth, is just what is the ultimate production rate? That, you know, that, to be quite honest, has probably more impact going forward on value right now, than just adding more ounces. It's already huge and gonna go for decades, but you know, what production rate will it run at? That, that'll be a real, real driver.
you know, there are base metal royalties out there that I think can match Silicon in terms of scale and, and sort of continuing optionality. Whether anyone's willing to part with those to, in, in, in trade is kind of an open question, but we'd certainly be open to that kind of a, a transaction. I mean, I won't close the door either. I mean, as this thing grows in scale here to just being a holder, that's always a possibility. you know, from a timing perspective, we're gonna want to see the study later this year, or maybe it's published in early next year, and then we've got that hearing coming up, the arbitration hearing coming up in early April.
Those are two big factors that are pretty much, sort of required prerequisites to us really getting our heads around what we're gonna do with this royalty.
Great. Thanks very much for the color.
My pleasure.
Thank you. Ladies and gentlemen, as a reminder, if you have a question, please press Star, followed by one on your touchtone phone. Thank you. At this moment, we show no further questions. I would like to hand the call back to our presenters for any final remarks.
Thank you, Hilda, thank you, everybody, for dialing in and for the questions, we'll look forward to speaking with you again in Q3.
Thank you, everyone. Enjoy your summer.
Thank you, everybody. Thank you.
See you, everybody.
Thank you. Thank you. Ladies and gentlemen, this concludes your conference. Please disconnect your-