Good morning, ladies and gentlemen, and welcome to Triple Flag Precious Metals Corp's Q2 2021 results conference call. I would like to remind participants that today's presentation contains forward-looking information, and we refer you to the cautionary statements in the presentation. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question- and- answer session. I would now like to turn the conference over to Shaun Usmar, Founder and CEO of Triple Flag.
Good morning, everyone, and thank you for joining us to discuss Triple Flag's inaugural quarter as a public company. I'm really excited to be sharing this moment with you and my team today. It really does represent the culmination of years of great work and dedication by this exceptional team. I'd like to start by thanking all of the investors who participated in our IPO in May.
We place the utmost value in their support and trust, and as significant owners of this business ourselves, we're truly aligned in ensuring Triple Flag's continued disciplined growth in value per share. The second quarter of 2021 set yet another record of gold equivalent ounce sales and operating free cash flow. Just over 22,500 gold equivalent ounces, we're up 40% over the same period in 2020, delivering a remarkable 100% increase in net earnings.
Sheldon will share more detail on our financial results shortly. For the first time, we're publishing our five and 10-year average annual gold equivalent ounce outlook, demonstrating that Triple Flag's portfolio is projected to continue our sector-leading GEO growth from the past four years. Supporting this is our strong near-term organic growth, backed by a stable, high-quality production profile over the next decade and beyond, with a portfolio average mine life in excess of 20 years.
Having built Triple Flag from the ground up since 2016 with sector-leading growth in gold equivalent ounces over this period, we're proud to demonstrate the ongoing growth and duration of our existing portfolio by showcasing our expectation of sustainable average production of 105,000 GEOs over the next five years and the next 10 years. We see this profile as a solid, high-margin, strong cash-generating foundation from which we will continue to grow net asset value, free cash flow, GEOs, and reserves and resources per share, while providing us with the financial strength to return capital to our shareholders through meaningful dividends.
On this topic, our board has approved our first dividend of $0.0475 per common share. This equates to a dividend yield of approximately 1.7% and allows us to directly share the benefits of Triple Flag's cash flow with our shareholders on an ongoing basis. We believe this is a robust dividend yield, which we intend to continue growing over time without compromising our disciplined growth story. Our focus will remain on delivering reliably strong results and returns as we pursue our strategy of disciplined and accretive growth through the acquisition of precious metal streams and royalties.
Turning to slide five. From the outset, we've been relentlessly focused on asset quality. Over time, this focus has translated into a portfolio that compares favorably on key portfolio quality metrics alongside the largest, most valuable peers in the sector. Each of our assets boasts compelling geology and the potential for significant exploration and production upside. Capable and responsible operators working to high ESG standards are prerequisites for each of our investments. A high proportion of our assets by net asset value are in production and operated by senior mining companies.
Additionally, beyond the operating mines, we have a large portfolio of exploration and development properties that will provide organic growth in the medium to long term. We have very deliberately structured a portfolio with a long average mine life, leading to assets with good track records of reserve replacement, social license, and proactive environmental management, which we believe ultimately leads to longer and more sustainable mines.
This, in turn, provides investors with long-term visibility to future cash flows and exposure to multiple commodity price cycles, in addition to the optionality that comes from future ounce additions through the drill bit. The vast majority of our producing assets are situated on the lower half of their respective industry cost curves. This is an important characteristic in an inflationary environment with rising materials and labor costs that we are seeing early evidence of and have historically put pressure on mining companies' margins.
As a streaming and royalty company with low-cost position assets, we are broadly insulated from these headwinds, particularly sectoral margin compression. As a precious metals royalty and streaming business, we've remained true to the model in our portfolio construction, avoiding exposure to equity positions and similar financial instruments and limiting our activities to overwhelmingly focus on acquiring precious metal streams and royalties.
We believe that is what our investors are seeking from us and will remain disciplined in executing on this model. Turning to slide six. Triple Flag's current valuation provides significant potential for a re-rating to metrics that would be more typical for our senior and intermediate peers, particularly in the context of the quality and longevity of our portfolio that aligns favorably with the best in the sector.
We believe that a re-rating will be driven by the continued performance of our business and consistent execution of our strategy. Our commitment to our investors is to continue to remain disciplined in the execution of our business strategy as we have done in building this business over the past five years. I'll now ask Sheldon to comment on our Q2 results and to provide some further context.
Thanks, Shaun. Turning to slide seven, I'd like to first review some of the highlights of our very strong quarter. I will start with the record that Triple Flag set in the quarter. First, we set a quarterly record for production, recording over 22,500 gold equivalent ounces in Q2. This represents a 40% increase over the corresponding quarter last year and a 14% increase over Q1 of 2021. For H1, we have realized over 42,000 gold equivalent ounces, a 50% increase over H1 last year.
We have enjoyed particularly strong performance from Cerro Lindo in 2021, as they have delivered stronger than expected silver grades. It is very gratifying to see the production growth that the portfolio is delivering. As we have a number of ramping assets, there is still further growth to come. Shaun will speak to the duration of our production profile later on in the call. The second record is perhaps the most important to our shareholders, that is the record operating cash flow of over $32 million in the quarter, representing a 48% increase over the corresponding quarter last year.
In H1 2021, we realized over $61 million in operating cash flow. A strength of the streaming and royalty model is that all of our operating cash flow is also free cash flow, as we do not have the sustaining capital expenditures that mining companies do. Bottom line earnings doubled over the corresponding quarter last year to over $18 million. The share count was higher in 2021 than it was in 2020, both due to the shares issued on the IPO and shares issued in 2020 as part of the funding of the Northparkes transaction. Nonetheless, we still realized earnings per share growth of over 40% over Q2 2020.
Adjusted net earnings saw even more dramatic growth, increasing over 10-fold in the quarter, and adjusted earnings per share increased six-fold over the same period last year. I'll now turn to slide eight. Slide eight sets out some of the measures in graphical form, with revenues, operating cash flow, and adjusted EBITDA increasing by 48% or 49%, and net earnings doubling year-over-year. The strength of the royalty and streaming model is that the revenue increases from increased production and higher prices are directly translated into free cash flow available to shareholders, without the drag from margin compression and sustaining capital expenditures.
We believe that it is important to directly share the benefits of this cash flow with shareholders through a robust dividend. Shaun has already touched on our first quarterly dividend of $4.75 per share. This quarterly dividend represents less than 23% of our free cash flow in the quarter. Turning now to slide nine, we set out our consistently high margins over the past five quarters. We have also set out the average gold price in each of those quarters, illustrating our resilience against cost inflation and margin compression at different gold prices.
I'll now turn to our 2021 guidance on slide 10. With a strong Q2 in the books, we are reaffirming Triple Flag's full year 2021 production guidance of 83,000-87,000 gold equivalent ounces. We are also providing guidance on 2021 depletion of between $53 million-$57 million on a full year basis. I'll now turn matters over to Shaun, who will introduce our long-term production guidance. Shaun, over to you.
Thanks, Sheldon. The team and I are proud of the business we've built, and we're working hard to not only continue our growth through accretive acquisitions, but to help provide the market with a richer and deeper understanding of the distinctive quality of our portfolio. Triple Flag's portfolio builds on our sector-leading GEO growth profile since 2017, with a CAGR of 24% through 2020, offering strong near-term organic growth and a stable, high-quality production profile over the next decade and beyond.
Production over the next five years is expected to average 105,000 GEOs per year, a significant increase over current production levels, primarily due to continued production growth from Buriticá, Pumpkin Hollow, Gunnison, Dargues and ATO. Over the next 10 years, we expect average production of 105,000 GEOs per year as we project the mining of the high-grade E22 block cave at Northparkes, which is expected to commence production in 2026.
Above and beyond the five and 10-year production outlook, we believe there is considerable optionality related to potential life of mine extensions, expansions, and exploration from our 15 producing mines and 60 exploration and development assets in the portfolio, before factoring in likely future accretive transactions that would add to our growth profile. Coming to slide 12, Triple Flag's portfolio has a strong balance of well-established core operating assets and assets in the ramp-up phase, providing near-term growth. Both parts of the portfolio are contributing to our record results, and I'm pleased to share some notable asset level highlights.
Northparkes continues to execute its expansion and had a strong quarter for Triple Flag, contributing over 4,700 GEOs in the quarter. Cerro Lindo, as Sheldon has mentioned, has driven very strong performance in 2021 with higher than expected silver grades. RBPlat is performing well despite the ongoing challenges of COVID in South Africa. Fosterville was a pleasant surprise in Q2, as the year-to-date production is currently tracking ahead of Kirkland's full-year guidance at Fosterville.
Young-Davidson is reaping the benefits of its earlier expansions and has announced that they expect to attain long-term rates of 8,000 tons per day in the third quarter. Additionally, we've seen encouraging exploration results outside of the existing resource. On slide 13, we set out the five assets in our portfolio that are currently ramping up to full capacity. ATO achieved commercial production in 2020 despite the impact of COVID.
COVID is, however, affecting the 2021 production due to supply chain issues impacting the China-Mongolia border. These challenges, unfortunately, led to shortages of critical reagents during Q2. They expect to recommence leaching in Q3 and have been mining and stacking ore throughout the year. The supply chain issues are a matter of production delays that are expected to be made up in future periods, essentially a timing impact.
Notably, 100% of the Steppe workforce is vaccinated, they're well-positioned to build on their impressive startup and attainment for commercial production during the early stages of the pandemic last year once they receive their reagents. Dargues, Buriticá, Gunnison, and Pumpkin Hollow all continue to progress their development. Each are currently contributing cash flows and are expected to gradually increase their production contributions going forward. Turning to slide 14.
As you're aware, we recently made the decision to take Triple Flag public on the TSX in May of this year. Part of the consideration in coming to market was our firm belief that the company had reached a critical scale sufficient to allow us to compete for and originate streams and royalties of meaningful scale as a public company and broaden our ownership base. We currently have available liquidity of over $600 million. Deals in the region of this scale could represent material growth to a company of our size, and you've seen our track record.
As we look to new acquisitions, we will maintain our discipline in ensuring strategic alignment, assets, and operator quality to be consistent with drivers of premium valuations in the sector. We will continue to showcase the exceptional mining and deal-making capabilities of this deeply experienced management team that together have earned over 5% of the equity through the returns we've generated over the past five years, uniquely aligning our interests with those of our fellow owners.
Turning to slide 15. While sustainability and ESG are now receiving the prominence they deserve, these topics are obviously not new. I've been fortunate enough to have spent much of my career in companies like Xstrata, where sustainability was a deeply ingrained value. Subsequently, the team and I have embedded principles of sustainability and good ESG practices in Triple Flag from day one, and we look forward to sharing our perspectives and approaches in more detail in our upcoming sustainability report, which we'll publish in September.
The role of the mining sector in the climate change challenge is one of the most important in our time. As providers of capital to the sector, we feel we have a duty and ability to help influence outcomes, but we must also take our share of responsibility for the impact of the metals that generate our revenues. We've done this by estimating and offsetting the attributable greenhouse gas produced by the metals that generate our revenues. We estimate a combined Scope 1, 2, and 3 output of just over 11,000 tons of CO2 equivalent for 2020, the majority of which relates to our share of metals production.
We're proud to have partnered with ClimateCare and NativeEnergy to ensure the purchase of high-quality, independently verified carbon offset credits. Whilst carbon offsets are far from perfect, each project we have invested in makes a measurable difference protecting the environment, as well as providing secondary benefits that align with the UN Global Compact 10 Principles and Sustainable Development Goals that are material to our business. In response to the COVID-19 pandemic, Triple Flag partnered with RBPlat to develop a distance learning initiative in consultation with and approved by the South African Department of Basic Education to be implemented in 2021.
The virtual classroom distance learning solution will assist in delivering daily lessons to grade seven and 12 learners on personal smart devices. The infrastructure and technology will be sustainable beyond the COVID pandemic. This initiative will directly benefit over 775 teachers and learners in six Doorstep community schools. In 2020, Triple Flag also supported six students through their university academic studies, which we're very proud of.
Now turning to slide 16. We're excited and grateful to begin our journey as a public company this year and have truly enjoyed welcoming and speaking with our new shareholders, with whom we look forward to a long and rewarding future. We have positioned Triple Flag as an emerging senior streaming and royalty company. We believe we have all the key ingredients to drive Triple Flag's growth and trading multiples.
We have a distinctive portfolio that objectively stacks up with the larger, most valuable peers in the sector on all the important metrics, and the ability and track record to continue to grow this company further in a manner that creates value for all our stakeholders. In the near term, an organic and sustainable increase in gold equivalent ounces, the payments of our inaugural dividend, potential early index inclusion, and news flow from assets in the portfolio are catalysts we see on the immediate horizon. Thanks again to all who've attended this call, and I'll now ask the operator to please begin the Q&A session.
If you would like to ask a question please press star then number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question is from the line of Greg Barnes.
Thank you. Shaun, just looking at the longer-term production plan or GEO plan out beyond 2026. You say 105,000 oz. We have E22 at Northparkes in our model. I'm wondering what else you included to get up there, because we're a bit short of that 105,000 oz.
Greg Barnes, thanks for the question. Good to chat to you. Included in there, over and above, I think the things that you would sort of naturally project in there. We've got the ATO fresh rock project included in that sort of timeframe. We've also included Tamarack. You'll see in that box in the bottom, we've got just a handful of names that you'll see are sort of incremental.
You'll see Tamarack in there. James, yeah, Kemess is the other one that's in there. Some marginal incremental ounces. As you know, what you'd expect over time, we're seeing potential for extension as we've seen with the same ounce reserves ahead of us now and things like Cerro Lindo when we did the deal four years ago. Those sorts of things I think we can sort of expect with time. That's a first reasonable indication from us.
Okay. The mine life extensions at Cerro Lindo and other assets are included in that as well?
I don't believe outside of what you would have already covered in your estimates. Obviously, every analyst has their views. I mean, we've got a good indication. We're not assuming things ahead of additional news at this time.
Okay. Just on the balance sheet, obviously, no debt, $600 million credit facility. Let's assume you come up with a big transaction, $500 million+ . How do you anticipate funding that? Equity, debt? What do you think the split will be?
Yeah. Greg, I think, look, the overarching point rather than giving you a sort of a committed formula at this time is this team owns over 5% of this business, and we are not about to engage in things that are either gonna go against our interests strategically in the longer term, but certainly aren't going to dilute us. That credit facility in the immediate term provides us with ample firepower.
I think the nature of what we acquire will really determine how we choose to fund that. For example, if you buy a shorter-term asset with significant amounts of GEOs and cash generation that can add to that funding capacity, we may look to see if we incur additional funding sources. At these valuations, as you'd understand coming out the gate, I think we're pretty loathe to go and sprinkle around equity at this time, Greg.
Right. Some of your peers are loathe to carry debt on their balance sheets. They use it intermittently but pay it down quickly, either by an equity issue or from cash flow. Are you willing to carry debt on the balance sheet for any kind of period of time?
We view it as a dry powder facility. At the end of the day, if you think about the mining companies that I've been in previously, and you start thinking about net debt, EBITDA ratios, where you've also got to factor in sustaining CapEx and other CapEx ahead of you. Those ratios can become pretty uncomfortable in certain pricing scenarios.
In this model, where we have essentially no future obligations of any significance and 90% cash margins, we can comfortably pay the dividends that we're paying now into the future and still service debt for some significant period until we feel that we've got an equity value that is reasonable for us to consider settling our debt, if we don't already settle it from cash on hand and cash we're generating. We're just going to be prudent rather than giving you sort of a formulaic approach, Greg.
Sure. No, that's fine. I just want to make sure you are willing to carry debt given the kind of cash flow that you can generate.
Yeah. No, absolutely. We're not afraid of doing that. We don't see permanent leverage as people we think are investing in these sorts of businesses for low risk and good optionality. We won't sustain leverage over time.
Okay, great. That's it from me. Thanks, Shaun.
Okay, thanks Greg.
Your next question is from the line of Tanya Jakusconek with Scotiabank.
Great. Good morning, everyone, thank you for taking my questions and congrats on your first quarter as a public company.
Thanks.
Can I just go back and circle on to Greg's question on what's included in the 10-year plan? Thank you for that information on some of the assets. I just want to follow up. Is Pumpkin Hollow open pit included?
No.
No? What about the Fosterville mine life? Do you have it extending more than just the known reserves?
Yeah, we model a mine life that's beyond the current reserve, which we think is pretty consistent with the majority of the sectors we see out there on that asset. We're certainly not modeling the most aggressive mine lives out there, but there is some increase beyond the reserve. As you'd expect, we show the production profile reducing over time in line with the Kirkland guidance to the market.
Okay. It is in that 10-year period then?
Yep.
If I could just, okay, leave the tenure, and I just wanted to circle back on just a couple of things. First, just on how you see the year shaping up and as we go into Q3 versus Q4. Safe to assume that Q3 is going to be better than Q4 on a gold equivalent basis, sorry, Q3 is going to be better than Q2, and then Q4 is going to be your stronger quarter?
Tanya, we've reaffirmed guidance. I think one thing when we look at the last five or six years, and I think what we try to focus on here is providing reasonable guidance that we have a pretty good degree of certainty of delivering on. We are ramping, so there is a reasonable expectation that over time, we should continue to see those ounces increase. I think the only thing that when we look at quarter-to-quarter, and it's a weird construct for me, focusing on a business like this on a quarterly basis, because you do get lumpy deliveries with assets, for example, like Northparkes.
I think we're in good shape for essentially what you're suggesting as we head into the back half of the year. If you do the math on the first half of the year, we're well set up to really meet guidance, right? Yeah, as I said, the areas of uncertainty are just shoulder periods for delivery, which is always a timing issue that we try and handicap on the guidance that we set. It's always call it timing uncertainty that we really try and factor in on deliveries.
I'd say the only other thing is, we did indicate ATO in this quarter was behind what we would have expected, really because of reagent supply. We're hoping they'll get that soon. Those ounces, I think they put out numbers saying that on the inventory, they've got like 35,000 oz that they've got in their sort of run pad in that. We hope to see that pick up quite well now. If they get those reagents soon, we should be very well placed for the back end with that.
Maybe just two other questions, just again coming back on just deal size. You mentioned that obviously you've got big cash on hand on the balance sheet to look at acquisitions. Can you just share with us what you're seeing out there, the types of deals and sizes that are coming your way?
Yeah. It's always an important question I think everybody asks. I suppose when you look at what everyone looks at in the sector, the proof of the pudding is ultimately what we end up doing. By that I mean we are consistently busy with the collection of either development stage opportunities, I think particularly at this stage of the cycle. We're active on one exclusive situation we've already been to site on.
We've provided feedback, and we'll see if that thing progresses the way that we'd like it to. We are seeing the usual set of, call it orphan royalty portfolios, which we come across quite frequently, which aren't always areas we find a lot of fundamental value on, but we are active in some of those situations. There's some transaction-related financing, there's some things in the millions of dollars through to hundreds of millions of dollars that we are active on at the moment.
I think the key for us, particularly at this time, you'll see that again, the thing that's the greatest risk, I think, to this team is ultimately doing transactions that are just not good. I think we're always erring on the side of caution, and in some ways, frankly, if we wouldn't play golf for a while and didn't do another deal, the organic growth that's in there is really significant. All that to say, our discipline, I think, is a really important feature of this team. We're very busy, but we're not in a rush to do deals for the sake of it.
Okay, maybe just a question for Sheldon. Can you just review or share with us your views on the global minimum tax proposal, whether and when you will see that executed and sort of the impact to Triple Flag?
Yeah. Thanks, Tanya. We've obviously been quite aware of that initiative, and we follow the various pronouncements on that. Quite frankly, it's not causing us really any undue concern with the value of our business. We've modeled different scenarios, basically coming, what different dates it might come into effect, and we don't have any special insight there. I will point out that, I think people's experience usually with tax changes, especially very complicated multilateral tax changes, probably happen a little slower than people expect rather than a little quicker than people expect.
In terms of the impact on us, in some ways you're dealing with hypotheticals. You have to make some assumptions, but reasonably, it wouldn't affect any of our royalties. All of our royalties are held in fully taxable jurisdictions currently, so you're kind of focusing then on the internationally held streams. If you assume that there's going to be an upfront tax shield for the deposit amounts, which is, I think, a pretty reasonable assumption, and because our portfolio is so young and we still have a lot of that tax shield still there, you end up with a pretty modest impact on value, kind of the low single-digit territory.
We're going to continue to monitor these developments. I think it remains to be seen whether the executive branches, which are the ones that are making these agreements, can have it carry through the legislative branches in the various jurisdictions. We're going to follow with interest, but not causing any undue concern on our part.
Okay, great. Thank you so much. I will leave it to someone else to ask questions.
Appreciate the questions.
Again, to ask a question, press star one. Your next question is from the line of Brian MacArthur with Raymond James.
Good morning, and thank you for the presentation and taking my question. Sorry to go back to this, but mine's sort of around the same vein as Tanya and Greg. Can you just give us a little guidance on what you did for Gunnison in the 10-year outlook? I guess, first of all, whether the buyback was there. Second, it looks like given the percentages of copper you give us, which I assume is the other in the 10-year, you assume that it does reach the 125 million-barrier in the back half. Any guidance on that would be helpful.
Well, Brian, look, just to get good morning and thanks for joining in the question. I'm going to ask James, who's with us, to just comment on the composition. He's put a lot of work into this with the team. James, I don't know if you want to comment.
Yeah, Brian, and Sheldon can also perhaps comment on Gunnison. The way it's structured is that we have a pretty consistent rate of copper deliveries regardless of whether they proceed with the expansion or not, because we have that ability to buy up the stream rate and then the reciprocal ability to buy down. The net effect is that the copper deliveries remain relatively consistent. It's sort of independent of the company's expansion decisions, and that's reflected in the outlook, both in terms of the GEOs and the copper split.
Great. Thank you. That's very helpful. Maybe I see another stream you have out there going forward is Renard, and you have a loan receivable coming due next year. Can you just remind me, and obviously it's being reinvested right now, but does that loan receivable just come into you next year if diamond prices continue to do well? Like how that all works going forward?
Hi, Brian. This is Sheldon. I think I'll take that question. The parties, it's us and IQ and the Caisse and Osisko that are kind of the parties involved in the Renard situation. You're right, that loan is coming due. I think we'll have to come up with a solution to look at Renard again and see what works well for that asset. What's really been gratifying, I think, over especially the last few months, is the strengthening of the diamond prices.
We've seen that in the publicly traded diamond producers. Everything's been strengthening, and Renard's, I think, been a pretty good news story for us this year. We'll have to work something out with everyone as to how we deal with that going forward. I think really the thesis on the restart of Renard has actually played out very well for both ourselves and our partners at Renard.
Brian, I think just to add to that, it's a very small part of our portfolio, about 1% NAV or thereabouts. I think it also just shows the strength of a model like this to maintain optionality, work with the miners, and we've got a good syndicate of partners there. We've seen that play out, I think, quite effectively.
Great. Thanks very much.
Thank you.
At this time, there are no further questions.
Operator, thank you. I think maybe we'll just give it another 30 seconds or so, and if there's nothing further, we just appreciate everybody's time and attention. We have a series of moments of firsts when you go public, and this is obviously an important milestone for us, so really appreciate everyone joining and for the questions we've received. Operator, unless there's anything else, are there any other calls?
There are no questions.
Okay. Well, look, everybody, thank you very much for participating today. Thank you, Greg, Tanya, and Brian for the thoughtful questions. If there's any follow-ups, you know where we are, and we're off to the races. We're looking forward to any of the coming. Thanks so much, everyone. Have a good day.
Thank you for joining today's conference call. You may now disconnect.