Triple Flag Precious Metals Corp
TSX:TFPM
Earnings Call Analysis
Q4-2023 Analysis
Triple Flag Precious Metals Corp
As 2023 unfolded, Triple Flag Precious Metals showcased remarkable achievements, backed by robust financial growth and operational success. The spotlight shone bright on the company’s record operating cash flow and adjusted EBITDA, which hit USD 154 million and USD 159 million respectively. Sales of gold equivalent ounces climbed to just over 105,000, emblematic of their consistent stride toward growth within the range set by their annual guidance.
With a 20% cumulative annual growth rate since 2017, Triple Flag solidified its position as an industry leader, manifesting a marvel of advancement through increased sales and an unwavering focus on gold equivalent ounces. The projection for future growth radiates confidence, guiding an expected significant increase from its Northparkes asset as it begins processing higher-grade gold open pit material.
Demonstrating steadfast dedication to shareholder wealth was Triple Flag’s distribution of over $40 million via dividends and $28 million through share buybacks in 2023. A subtle increase in operating cash flow per share fortifies the company’s value proposition. Moreover, maintaining a solid balance sheet with minimal net debt offers potent flexibility for strategic capital allocation going forward.
A commitment to diversity is seen in Triple Flag’s asset base, with a rich array of mines contributing to revenue streams—most notably, Cerro Lindo and Northparkes. The company’s investment in the 2016 silver stream at Cerro Lindo advanced to fruition with a full recovery of their initial investment, reinforcing the potency of the streaming model for long-term benefits.
Looking to 2024, the company fixates on the production of 105,000 to 115,000 gold equivalent ounces, with an anticipation of increased output from its lucrative Northparkes mine. While accounting for higher depletion costs and general and administrative expenses, the company expects to maintain an Australian cash tax rate around 25%, congruent with 2023’s rate.
With an exploration budget of $22 million for 2024, the Hope Bay multi-deposit gold project, steered by Agnico Eagle, stands as an exciting frontier for Triple Flag. The successful drilling results and ongoing extensive exploration program signify a promising addition to the company’s development stage assets portfolio.
Triple Flag’s horizon is painted with prospects of new ventures as it eyes opportunities ranging from tens to hundreds of millions of dollars. Amid the flowing spectrum of potential investments, the company exercises prudence—mindful of liquidity risks in the current financial climate. Cautious yet agile, Triple Flag possesses the capabilities and, if warranted, the readiness to engage in transactions upwards of $500 million, always vigilant to balance risk with strategic corporate expansion.
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Ladies and gentlemen, good morning. My name is Abby, and I will be your operator today. At this time, I would like to welcome everyone to the Triple Flag Fourth Quarter and Full Year 2023 Results Conference Call. Today's conference is being recorded. [Operator Instructions] And I will now turn the conference over to Shaun Usmar, Chief Executive Officer. Mr. Usmar, you may begin.
Abby, thank you, and good morning, everyone, and thank you for joining us to discuss Triple Flag's Fourth Quarter and Full Year 2023 results. Today, I'm joined by our CFO, Sheldon Vanderkooy and our Senior Vice President of Corporate Development, James Dendle. Turning to Slide 4. Our business continued its strong performance during the fourth quarter with sales of roughly 26,000 gold equivalent ounces, resulting in USD 38 million of operating cash flow during the quarter. On a full year basis, our portfolio generated sales of just over 105,000 gold equivalent ounces, delivering within our guidance range and creating a new record for Triple Flag. The strong performance resulted in USD 154 million in operating cash flow and USD 159 million in adjusted EBITDA for 2023, both new records for the company.
In December, Evolution Mining acquired an 80% interest in the Northparkes copper gold mine in Australia in which Triple Flag retains at 54% gold stream and 80% silver stream. Evolution has a long history of operating in Australia and is poised to continue developing and operating Northparkes in the exceptional manner that CMOC had previously. Northparkes is a world-class asset, having a multi-decade mine life and great exploration potential, and we expect the high-grade E31 deposit to drive a significant increase in 2024 estimated stream deliveries for the asset. Additionally, several of our over 200 developments and exploration stage assets continue to advance, highlighted by exploration success at Hope Bay and updated economic studies at Kone and Eskay Creek. Finally, looking forward to 2024, we're establishing a guidance range of between 105,000 and 115,000 gold equivalent ounces while reaffirming our 5-year outlook averaging over 140,000 gold equivalent ounces.
This builds on Triple Flag's track record of sector-leading growth in gold equivalent ounces over the past 7 years, where we've delivered a cumulative annual growth rate of more than 20% since 2017 and continuing with short- and medium-term growth well in excess of our intermediate peers for comparable capital deployment, which we've reaffirmed at an annual average of 140,000 GEOs.
I'll now turn it over to Sheldon to discuss our financials for Q4 and the full year 2023.
Thank you, Shaun. We had a strong fourth quarter with the portfolio producing over 26,000 gold equivalent ounces, which resulted in us achieving our full year 2023 guidance with a final total of over 105,000 gold equivalent ounces. This resulted in records for both revenues and operating cash flow during 2023, supporting our investment thesis for the Maverix transaction more than a year ago. Operating cash flow per share is a very key metric for me, and I'm pleased to say that we increased slightly for the year from $0.76 per share to $0.77 per share. This reflects accretive growth for the year. It was a solid quarter and a solid year. Our dividend has been maintained at USD 0.21 on an annualized basis, which resulted in Triple Flag paying out over $40 million in dividends to shareholders in 2023. We have increased our dividend every year since our IPO. And as the year progresses, we'll consider the potential to continue that track record. In addition to our dividend, we also returned over $28 million to shareholders via share buybacks. As of December 31, 2023, we have 9.9 million shares of remaining capacity under the current NCIB. I'd also like to comment on our strong balance sheet. We exited 2023 with just over $40 million in net debt. In Q4, we had operating cash flow of $37 million. So our net debt represents just over 1/4 cash flow. This positions us very well, allowing us to make capital allocation decisions to benefit shareholders through new acquisitions, share buybacks or dividends. I'll turn now to Slide 6. Our portfolio has shown consistent growth since our inception. 2023 was a record for operating cash flow, free cash flow and adjusted EBITDA, each increasing significantly from 2022 and due to the acquisition of Maverix Metals as well as other royalties acquired during the year, such as Stawell and Agbaou. Consistent margins result in efficient translation of revenue and the cash flow available to shareholders. Our portfolio has significant embedded production growth. As production grows and further aided by a beneficial gold price environment, we expect our free cash flow to grow due to both the price and the volume impact. Moving to Slide 7. We have highlighted here 3 very important aspects of our portfolio, namely asset diversification, precious metals focus and a portfolio which is predominantly centered in the Americas and Australia. Our revenue is well diversified across our portfolio. Cerro Lindo and Northparkes are our biggest contributors during the year, representing 22% and 14% of annual revenue, respectively. Cerro Lindo was our first investment. In 2016, we invested $250 million in a silver stream. I am very pleased that in Q4, we achieved a significant milestone of having recovered all of our initial investment in Cerro Lindo.
Demonstrating the strength of the streaming model, Cerro Lindo has a current remaining mine life of over 8 years. We're going to benefit from this stream for a great deal of time to come. And my expectation is that over time, mine life will continue to be extended as it has in the past.
Moving on, the investment thesis for Triple Flag is for a strong pure-play royalty and streaming company focused on precious metals. This has not changed since our inception in 2016. Gold and silver account for roughly 95% of our revenues amongst the highest in the sector. Our portfolio is centered in mining-friendly jurisdictions -- jurisdiction matters. Our single greatest country concentration is in Australia. Our Australian producing assets include Northparkes, Fosterville and Beta Hunt as well as a number of smaller contributors, including Stawell.
I'd like to now turn to Slide 8. Slide 8 sets out our production growth since we were founded in 2016. In 2017, we produced 33,000 gold equivalent ounces. By 2023, that had increased to 105,000 ounces, a 3x increase and a compound annual growth rate of over 20%. Looking forward, we expect this growth to continue in 2024 with our 2024 guidance being between 105,000 and 115,000 gold equivalent ounces. We also expect this growth to continue for the next 5 years as we are expecting our gold equivalent ounces to average over 140,000 ounces from 2025 to 2029. Importantly, this is by organic growth from assets already within our portfolio and does not include any additional acquisitions that may occur. This production growth will efficiently translate into increased cash flow for shareholders.
Turning now to Slide 9. I'd like to provide some additional guidance on financial metrics. We've already stated our GEO guidance of 105,000 to 115,000 gold equivalent ounces. This is driven by our expectation of significant growth from Northparkes due to the processing of higher gold grade open pit material at E31 and the E31 North, which Shaun will discuss further. Depletion is expected to be between $70 million and $80 million, higher than the prior year, given the growth in gold equivalent ounce production while our G&A will be between $23 million and $24 million.
Finally, our Australian cash tax rate for our Australian royalties will be approximately 25%, consistent with the 24% rate that was realized in 2023. Over to you, Shaun.
Thanks, Sheldon. I just want to spend a moment talking a bit about Northparkes as a cornerstone asset. As mentioned, Northparkes was acquired by Evolution Mining in December of last year. Northparkes is positioned in Evolution's backyard and in one of Australia's most prospective gold copper belts in New South Wales, which I will highlight in a later slide. Evolution brings significant expertise in large-scale underground caving operations from its Ernest Henry mine, having a skill set and experience that is well suited for a large-scale porphyry operation such as Northparkes. As you can see on the next slide, mining of E31 open pits in Northparkes is well underway, and we expect these higher gold grade pits to contribute materially to our gold equivalent ounce profile starting this year. On Slide 12, you can see that Evolution has had great success with developing and optimizing prior acquisitions like the Cowal mine, which is proximate to Northparkes. Since acquiring the mine in 2015 from Barrick, Evolution has successfully delivered sustainable production, reserve and resource growth and major capital projects.
The savvy approach to investing and adding mine life and capacity to create shareholder value in a mine regionally proximate to Northparkes, bodes well for our interest in this mine with our new partner. And we're excited to help investors appreciate the world class quality of our gold and silver stream on this cornerstone asset as the Evolution shows the market what value they can unlock in the years ahead.
I'll hand over to James now to discuss Hope Bay.
Thanks, Shaun. Touching on one of our exploration assets that has generated significant news flow for the last year. Hope Bay is a multi-deposit gold project operated by Agnico Eagle, of which Triple Flag holds a 1% NSR royalty. Agnico is undertaking an extensive exploration program at Hope Bay with 2023 drilling, totaling more than 125,000 meters and 2024 exploration budget of $22 million, focusing on high potential areas of Madrid and Doris. The results from an internal technical evaluation are expected to be reported in 2025, targeting a larger production restart scenario. On Page 14, you can see the size of the land package at Hope Bay and the multiple deposits and exploration targets that Agnico Eagle has identified. Of particular interest is the target area in the vicinity of Patch 7 in the center of the long section, which has delivered strong results, including 16.3 grams per tonne gold over 28.6 meters at a depth of 385 meters and 12.7 grams per tonne gold over 4.6 meters at a depth of 677 meters. As one of the exploration and development stage assets that we were excited about when acquiring Maverix Metals. We're happy to see our thesis play out and look forward to seeing Agnico Eagle continue to develop this project. Back to you, Shaun.
Thank you. So as the snapshot demonstrates, Triple Flag's outlook is overwhelmingly positive. With our ample firepower of roughly USD 660 million in available liquidity, a broad base of 235 assets, our eighth consecutive sales record projected for the year ahead with guidance of 105,000 to 115,000 gold equivalent ounces and a 5-year average annual production outlook of 140,000 gold equivalent ounces. We're excited to continue growing Triple Flag into a leader in the sector with our top sustainability ratings and our prudent capital allocation decisions. With the Board and management team being large shareholders ourselves, we are completely aligned in ensuring the best outcomes for all stakeholders and are looking forward to what 2024 has to offer. So with that, Abby, please open the floor to any questions.
[Operator Instructions]
We will take our first question from Cosmos Chiu with CIBC.
Thank you, Shaun, Sheldon and James. And congrats on a very strong 2023. Maybe my first question is on Northparkes. Good to see an Evolution taking over Northparkes and Shaun, you talked about some of the benefits. But I'm just wondering, still early days, but have there been any positive changes at Northparkes that you can share with us?
Cosmo, firstly -- I think it's a point we had made. Firstly, thank you for the praise. I've got a great team, and we're really very proud of them and what this team has achieved. To your point on Northparkes, I just want to take a moment because you've traveled this journey with us. I know that we've had perhaps some of the, I'd say, best access and disclosure in Northparkes, but really -- and China Moly were great partners. But they really didn't have the same sort of reporting disclosures that I think we'll see in the Evolution. So I guess -- in the short term, it's only a month since Evolution has acquired the business. They've only just put out geo compliant reserve statements. We expect in the coming months, they are going to be highly motivated to unveil their studies and their vision for this. So it's premature for us to certainly front run them, but the business is -- it has multiple ore bodies. It's well set up. E31, E31 North has done beautifully for this year and next year to deliver very, very material gold ounce growth for our portfolio. We're actually having dinner with the team on Sunday night, and so we'll get further updates. And we're going to keep the market informed. I think just conceptually, one of the great royalties in this sector is Malartic, that's no secret. You think of this asset with a longer life, a similar NAV for our company as it is to Osisko, but really with a growing ounce profile and actually a longer life, and that's before Evolution have engaged. And it's not to say one is bad, one is good. These are both great assets. Our job is really to work on the curtails of Evolution and what they see, hopefully similar to what they've done at Cowal and to really showcase this asset in the very same way that people come to associate Malartic with the Osisko. It truly is that world class. And I think that's what we would like investors to appreciate. I think with Evolution, their track record and also the disclosure obligations that will unveil itself in the weeks and months ahead. I'll see if James or Sheldon have any other comments they wish to add.
Yes. Cos, I'll just reinforce Shaun's point, CMOC a tremendous operator and really ran Northparkes very, very well. And many of the operating team are consistent from Rio Tinto days, CMOC days and now on to Evolution with a few changes here and there. But really, there's some similarity in the operating team. If you look at Evolution's comments publicly, they're focused on the plan as expected. They point to the size of the mineral inventory. And as a reminder, we're talking about 0.5 billion tonne resource that's currently being chipped via at 7.6 million tonnes per year. So scope to maybe grow that throughput, given the size of the mineral endowment. They've also stated a focus on immediate drilling to target near mine mineralization at surface and also some of the deeper portions of E48.
So we think they're looking at it exactly the right way. We've always been convinced that search and exploration at Northparkes really limited and really was focused on open pitable material. And we think there's tremendous possibility at depth. So I think that reflects quite well with regards to how Evolution is looking at the asset, but we'll see how they go with disclosing their plans over the course of the year.
I'll give you a flavor. Watch the space, there should be more to come.
Of course, yes. And maybe as a follow-up, on the MD&A yesterday, you mentioned short term and Northparkes, the growth is coming from E31 and E31 North, the open pits. Longer term, it's potentially coming from the E22 underground. Could you maybe help us understand or describe once again, the evolution of the asset, the sort of life of mine of the open pits and what needs to be done in terms of the underground and just kind of wrap it all together for us quickly, if possible.
Sure. James, do you want to...
Yes, sure. And this is good refresh. If you think about Northparkes historically, it was a series of relatively small open pits, targeting copper gold mineralization more or less surface, that was in the mid-90s. Over time, those pits have been developed. And of course, at the time it was North then Rio Tinto discovered the deeper porphyry system beneath the pits.
And the mine has transitioned progressively from shallow open pit to very sophisticated block cave. And now mines a series of block caves predominantly in a number of supplementary open pits. So that's been the history of the mine. There are numerous open pit targets across the property. So we'd expect some contribution of open pit to continue into the future. But as you know, Cos, the real sustained growth is from the development of E22. And when you look at E22, we're talking about a grade that's quite in excess from a gold point of view versus the current rate of mine grade so 0.37 grams a tonne. So that provides for a longer period of increased gold output. The open pit at E31 are by design relatively small and relatively short-lived. So they'll provide production this year and into the next part of 2025. But really, the set of sustained gold output is from E22, which is an important development that I know Evolution is also focused.
Just to James' comment, I think part of the thesis we had, which you sort of alluded to when we did the transaction because we made sure that we had full exposure to the over 1,000 square kilometers of land package. And if you recall, the surface manifestation of those reserves are only on 26 square kilometers, that 0.5 billion tonnes or so with really the opportunity to find more sort of undiscovered material at depth. And even since we've owned this, which has not been a long time, they've been very successful with limited drilling to date and uncovering that. So very excited to see what Evolution can do. And when you have acquired [indiscernible], I'm sure you have lots of time in the reporting season, but go back and look, our CFO, Barrick, when they're quite [indiscernible] as a case study, it's just down the road. It's a very impressive track record of adding substantial value and unlocking value, which I think they're well positioned to do with this mineral endowment.
[Operator Instructions]
And we will take our next question from Annie Janik with Scotiabank.
I think that's me, Tanya, it's not Annie, but this would be Annie today. Question for Sheldon first and then over to you, Shaun, on just the transaction environment. Sheldon, I was a bit surprised about the G&A levels this year, and I thought we were going to start to see some of the synergies from the Maverix transaction on some of the G&A. Would you be able to just talk to us a little bit about how you see your G&A going out? I was just a bit surprised, I thought we'd see a bit of synergies.
And when you're talking about the G&A, are you talking like the 2023 or the guidance going forward in 2024.
The guidance going forward. Yes, guidance because I didn't really expect it to occur Sheldon in 2023. I thought we would start seeing it in '24 and beyond.
Yes. So first, we actually have completely delivered the $7 million in synergies and you can kind of get there just by looking at the executive team spend at Maverix, the board costs coming down, audit insurance office space. So that $7 million has been fully realized. There's a couple of impacts you're going to see as we go forward.
So remember, historically, we're a private company. We went to the public on the TSX and we also started to experience the New York listing costs. So there's additional costs in that regard, and that has D&O costs as well as just other compliance costs. And we also became subject to SOX this year. So you'll see our audit report looks a little different. We're actually fully compliant with SOX in 2023. That's an accomplishment for the team, but it also involves additional costs and expenses.
The other thing is the -- some of the noncash equity compensation from accounting point of view gets treated, gets moved in over a number of years. Hence you end up with a catch-up effect there. But I think we're really coming up to really what our run rate is on the G&A front. And even after we grow the portfolio, we wouldn't expect the G&A to have to grow accordingly. We'll get that gearing effect and just be able to leverage the platform.
Okay. So we should be thinking of this level going forward?
Yes, that's right.
Okay. Thank you, for that Sheldon. I wanted to just talk a little bit about the transaction environment, if I could. And just what are you seeing out there? And size wise, this morning, we've had Newmont put 8 assets on the block. So I just wanted to talk about -- could you see yourself participate, obviously, in those asset sales. Some are in Ghana, some are in Australia, some are in the U.S., Canada, just your thoughts on this environment and your opportunities.
Yes. Tanya, it's kind of interesting if you zoom back. Well, I guess the first answer to your direct question is yes, we need the firepower and indeed, the appetite. So if there is a sensible partnership, we'd obviously look to do that. The deal environment when I step back and I look at some of the issuers reporting just this period, I'm not saying it's necessarily 2014, which was a very interesting period for the sector to deploy meaningful amounts of capital. But it's starting to feel a little like that. I think we're seeing a number of sectors coming under pressure from a liquidity point of view, some very big issuers who have seen substantial declines in pricing. I'm not talking about precious, of course, but polymetallics and others. And it does feel to me with the equity capital markets being not the most supportive to the sector and valuations coming under pressure that I think the opportunity set obviously is actually growing. It's growing in a way that absent some magical rebounds in the traditional markets, I think, is setting up well for the sector as a whole.
We've had multiple site visits already this year. We're seeing advanced in some cases, bilateral opportunities, which we may or may not convert on in the sort of tens of millions to sort of hundreds of millions of dollars. And so that's, I'd say, what's on the menu directly. But even in the last 24 hours, I've had direct inbounds on situations that I think are being made possible by the environment I've just described.
So the only caveat you would have heard me say, even a year ago, where we were bilateral on some very large transactions is that I think there's -- with opportunity comes responsibility. And I think it's a great environment for us to be receiving, interesting deal flow opportunity. But we also are very cognizant of just the overall liquidity risk in this rate environment. And we're spending a disproportionate amount of time on what happens when things inevitably don't go to script.
So that analysis beyond just the simple IRRs and the stable stakes that you would normally expect from us. I think we've amped that up. I don't know if that answers it, but we're seeing a lot right now.
And what would the size range be? And what would be sort of the upper end of what you would be comfortable to do with your balance sheet?
I mean, there are some, I would say, hard to sort of predict probabilities, but some that are in excess of our financing capability, where we perhaps be looking at partnerships, but we are seeing several -- as I say, in the good return sort of multiple hundreds -- tens of millions to sort of $100 million to $300 million type snack bracket, which for us is pretty easily financeable.
Yes. something over $500 million, we could see you do. That would be more -- go ahead.
I mean, as you'd appreciate, Tanya, the guys on this call have a lot of shares in this company. And I think that the very idea of like incurring dilution for the heck of it isn't a great idea. You'd have to have something super interesting of scale. And if there was sort of almost a generational opportunity, you'd obviously think long and hard about that. But you think in our 8-year history, the histogram of opportunities. The largest actual just pure precious streaming opportunity was Northparkes. And we could do Northparkes today again, with our capability with the additional cash generation that comes in. Could we see things bigger? I'm sure we could, and we just haven't seen one in the last 8 years. No one gets bored to book.
And we have no further questions at this time. So I will now turn the call back to Mr. Shaun Usmar for closing remarks.
Thank you. I think the questions we've got quality over quantity, which is wonderful. And I think there's -- it's probably a reflection of, I think, what should be straightforward and a good set of results. I'll end by just saying thanks again to my team, our Board, our partners and our investors for their trust. I think it's been a great year. I think when you step back and consider the outlook we've just provided and you consider it in the context of the sector, I think it should show quite well.
And I'm truly appreciative of the platform that we have, it's simple. We've got a -- the growth that we've delivered, I think, should be plan for everyone to see over 8 years now. And we've got a lot of firepower, like $50 million of debt basically on the balance sheet at this stage. And a cash run rate of trailing at about USD 160 million. We're extremely well positioned, and I'm excited for what lies ahead. So thank you very much. I wish you well for the rest of the day, and that's it. Thanks, Abby.
Thank you. And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.