Triple Flag Precious Metals Corp. (OTCPK:TRFPF) Q2 2022 Earnings Conference Call August 10, 2022 10:00 AM ET

James Dendle - VP, Evaluations and IR

Fahad Tariq - Credit Suisse

Josh Wolfson - RBC Capital Markets

Greg Barnes - TD Securities

Brian MacArthur - Raymond James

Mikel Abasolo - Solo Capital Management

Hello. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Triple Flag Q2 2022 Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Mr. Shaun Usmar, CEO.

Lisa, thanks, and good morning, everyone, and thanks for joining us to discuss Triple Flag's second quarter results. Today, I'm joined by my partners, our CFO, Sheldon Vanderkooy; and my Vice President, Evaluations and IR, James Dendle.

Turning to Slide 4. We're pleased to report solid results for the second quarter. Gold equivalent ounces sold in the second quarter declined versus last year's record results for the same period due mostly to quarter-end timing of shipments and a higher gold-silver ratio. But this still represented our third best quarter of operating cash flow in the life of the company.

We expect full year 2022 gold equivalent ounce sales to be weighted to the second half of the year with sales volumes of gold and silver on track for a record in 2022. Operating performance across the portfolio was broadly in line with our expectations with underperformance of our two ramp-up assets at Pumpkin Hollow and Gunnison, both in the U.S., offset by solid performance at the other 13 operating assets. James will provide a bit more color in his asset update a bit later, and Sheldon will cover the financial results in more detail shortly.

We're also pleased to announce that after our first full year as a listed company, we're increasing our annual dividend by 5% from US$0.19 per share to US$0.20 per share, equating to a sector-leading dividend yield of around 1.8%. This is made possible due to the underlying delivery of our portfolio, and we believe it is important to return capital to our shareholders as we continue to grow our business.

As well, today, we announced that Triple Flag is in the process of applying to list our common shares on the New York Stock Exchange to increase our trading liquidity and provide greater access to U.S. investors. Upon receipt of all our required approvals and completion of the New York Stock Exchange listing process, Triple Flag will publicly announce its first trading date on the stock exchange and will trade on both the NYSE and the TSX under the symbol TFPM.

On the corporate development front, our team continues to be extremely active. We've evaluated many deals this year, engaged in several bilateral deal opportunities and conducted various site visits.

We've seen the deal landscape become unusually aggressive over the past 12 to 18 months amongst larger peers. And implied consensus returns are generally being notably lower than historic norms, including on riskier development-stage assets, which we've seen dominate the deal pipeline population and at a time of significant cost and capital inflation and supply chain disruption.

We see this as a temporary phenomenon against an increasingly attractive landscape for alternative financing in the mining sector as debt and equity become more expensive and unreliable sources of capital for miners in this inflationary environment.

Although we have ample liquidity for new deals at nearly US$700 million, we feel no pressure to transact for the sake of growth at the expense of value, and we'll continue to remain disciplined as we look to deploy capital in the best way possible to grow value per share in keeping with our strategic focus as a high-margin precious metals investment vehicle.

Consistent with this patient and disciplined approach, we previously announced the exclusive nonbinding AUD 10 million royalty and US$80 million stream agreement with Orion Minerals on the Prieska Copper-Zinc Project in South Africa as well as the royalty we acquired on the Sofia gold project in Chile for US$5 million.

The portfolio is delivering organic growth, both in the short term and medium to long term. Steppe Gold resumed leaching from ATO Phase 1 in March and they're advancing to ATO Phase 2 expansion. At Buriticá, the processing facility is currently undergoing a ramp-up expansion to 4,000 tonne a day that is expected to be reached later this year.

Northparkes achieved record plant throughput in May of 682,000 tonnes following the completion of the expansion program and the ramp-up of the E26 Lift One North block here. James will comment further on the many development highlights within the portfolio.

I'll now turn it over to Sheldon to discuss our financials for Q2 2022.

We had a solid quarter that was in line with our expectations, and we remain on track for the balance of 2022. On July 12, we pre-released our Q2 metal sales, which totaled 19,500 in the quarter. In H1 as a whole, we have achieved 40,000 GEOs.

Our 2022 expected production is weighted to the back half of the year and we remain on track to achieve our 2022 expected guidance of between 88,000 and 92,000 GEOs. Q2 metal sales were impacted by a higher gold-silver ratio and also by timing of shipments near quarter end, but the portfolio continues to perform consistent with our expectations.

Adjusted net earnings came in at just under $15 million or $0.10 per share. A key measure for us is the operating cash flow we are able to generate. Operating cash flow in the quarter was $30 million, representing our third highest quarter yet for operating cash flow. On a per-share basis, we realized operating cash flow of $0.19 per share. We are very pleased to announce an increase in our dividend to $0.05 per share per quarter. We are pleased to achieve this dividend increase one year following our IPO.

Turning to Slide 6, I'd like to comment on the consistently high margins we have realized. The dominant economic story of 2022 has been the sharp increase in inflation to levels not seen in over 40 years and a consequent sharp increase in interest rates. The streaming and royalty model is very well suited to a high-inflation environment.

We have top line revenue exposure, allowing us to benefit from general price increases, but shielding us from operating and capital cost inflation. We don't experience the operating leverage that mining companies do and have experienced very consistent margins despite volatility in price levels and that, in turn, results in stable cash flows as illustrated on the next slide.

Slide 7 sets out the strong and consistent quarterly cash flows we have realized over the past two years. These dependable cash flows give us the confidence to increase our quarterly dividend in the current inflationary environment. Since our IPO, we have already paid $30 million in dividends to shareholders, and we are increasing our dividend rate going forward. On a quarterly basis, this now represents approximately $7.8 million in aggregate, which is comfortably supported by cash flow generation of the portfolio.

Turning to Slide 8. Our cash balance at the end of the quarter was $74 million, and we are debt-free. We have maintained our discipline with respect to new stream and royalty acquisitions as conditions for acquisition of new streams and royalties have become more competitive over the past year. We believe that there will be good opportunities to deploy cash in the future, but we will continue to maintain discipline and are happy to build cash in the meantime.

This management team are also shareholders with a significant stake in the business. We will always guard shareholder value and never pursue growth for growth's sake. The higher interest rate environment does not affect our financials. We have no debt drawn, and indeed, we benefit through higher rates on our cash deposits.

Last, I'd like to turn to Slide 9 to quickly highlight our asset diversification, our strong precious metals focus and our strong focus on Tier 1 mining jurisdictions. We are well diversified by asset with no asset exceeding 30% of Q2 revenues. Nearly 60% of our Q2 revenues were from gold and nearly 35% were from silver, maintaining the strong 90%-plus precious metals focus.

And finally, our portfolio is predominantly focused on Tier 1 mining jurisdictions. Our single largest country exposure is Australia. And other than Australia, we are predominantly weighted in North and South America. Today's environment has an increased focus on jurisdiction risk, and our portfolio is very well positioned in that respect.

I'll now ask James to speak to some of the asset highlights.

Production across the portfolio was generally in line with expectations. As Shaun mentioned, Northparkes achieved record plant throughput in May of 682,000 tonnes, which represents an annualized rate of over 8.1 million tonnes per annum, which is significantly beyond the stated nameplate capacity of 7.6 million tonnes per annum following the completion of the recently completed expansion program.

Ramp-up of E26 Lift One North and the cave performance is in line with expectations. Rail disruptions have occurred between Parkes and Port Kembla due to severe weather causing flooding and land slips at points in the route utilized by Northparkes as well as industrial action by the Pacific National bulk rail. Concentrate shipments have continued using an alternative rail provider that takes a longer route between the mine and the port. This has not impacted us and the main line is expected to be back online in Q3.

Northparkes is progressing in order-of-magnitude study on new zones that is proximal to existing mine infrastructure called MJH, which has not yet been included in the mineral resource and mineral reserve. We'll provide more updates as studies progress. Staying in Australia. Fosterville has delivered strong performance year-to-date. Agnico expects third quarter production to be lower than second quarter. However, the fourth quarter is expected to be the strongest of the year.

In the second quarter of 2022, the Robbins Hill and Lower Phoenix exploration declines were completed. The completion of these exploration drifts puts the company in a good position to accelerate the exploration and conversion drilling in these prospective areas in the second half of 2022.

Also in Australia, Aurelia reported its highest quarterly mine tonnages, backfill placement, mill tonnages and gold production at Dargues. We noted in the first quarter that the mine was impacted by record rainfall in Southeastern Australia.

During the second quarter, water levels reduced and the planned tailings storage facility raise is now expected to be completed in September. Dargues is also progressing regulatory approvals for additional mechanisms to manage tailings storage facility water levels.

The Cerro Lindo in Peru performed as planned despite the challenges of processing higher proportions of harder volcanic ore during the year. Silver grades in the first half of the year have been higher than average, and we will continue to see the benefit of this enough sales during the second half of 2022, reflecting the roughly 4-month lag between mine production and saleable metals.

At ATO Mongolia, mining proceeded ahead of schedule for the year and heap leaching is proceeding as planned. Steppe is currently constructing the crusher and other surface infrastructure for the fresh rock expansion. The status of reagents is good with additional deliveries expected in August.

Turning to the U.S. At Pumpkin Hollow, Nevada Copper announced it had encountered weak rock structures in the main ramp at the East South Zone, which restricted access to the planned stoping zones. Activities were adjusted to develop plans to address this while prioritizing development work through the dike structure on priority headings for the Northeast mining zone, which has significantly higher copper grades and better geotechnical conditions. The work on this is close to complete, but liquidity constraints have forced the curtailment of underground mining activities.

Last week, the company announced that it had advanced restart plans of Pumpkin Hollow, which were focused on accelerating capital items followed by the development of significant stope inventory in advance of a mill restart and completion of the ramp-up. The company has secured interim financing and is in discussions with financing partners, including Triple Flag, to secure a longer-term funding package to finance the restart and ramp-up to commercial production.

Excelsior reduced operations at the Gunnison project wellfield while work on the Johnson Camp Mine restart and planning for wellfield stimulation trials aimed at improving flow rates and sweep efficiency of the wellfield is undertaken with the objective of overcoming the challenges associated with CO2 generation. Drilling results for the JCM pits have been encouraging. Leach pad permitting is ongoing and test work and drilling activities continue at site. Delays in stream deliveries due to Pumpkin Hollow and Gunnison did not impact Triple Flag's 2022 guidance.

Closer to home, we've been pleased to see mining rates exceed 8,000 tonnes a day for the fourth consecutive quarter at Young-Davidson. Since we acquired the royalty in 2018, we've benefited from the excellent work that Alamos has undertaken to expand Young-Davidson and provide the long-term lower mine infrastructure.

I'll turn the presentation back to Shaun.

During the second quarter, we released our 2021 sustainability report, showcasing our contributions and commitment to helping evolve market-leading ESG performance. Our scholarship programs at ATO, Northparkes and RBPlat continue to provide support for young people interested in careers in the mining sector.

We continue to be carbon-neutral for all our Scope 1, 2 and 3 emissions since starting this business by purchasing offsets and are now working on setting out our road map towards net zero emissions by 2050. Finally, we joined the World Gold Council in May and are proud to support responsible development across the gold supply chain as an active part of this industry forum.

On to the next slide. We built this business over the past six years with the major streaming and royalty competitors in mind as a way to create value for our investors and mining partners alike. For our mining partners, we held the view that precious metals royalties and streams presented an underappreciated opportunity to satisfy the growing capital needs for underserved miners in a competitive and symbiotic manner, satisfying the needs of the sector requiring large amounts of long-term capital.

For our investors, we chose to demonstrate the benefits of the precious metal streaming and royalty business model to create value over time and offer a preferred investment vehicle for precious metals exposure. The value of the business model is on full display, as Sheldon mentioned, during these generational inflationary times, where our low overheads and the high margins of our portfolio underpins strong cash flow generation at a time when operating mines and development-stage assets are experiencing significant margin compression and growing liquidity pressures.

Our 15 operating assets have generated $115 million in free cash over the past 12 months, allowing us to pay a sector-leading dividend yield of 1.8% while our exploration and development-stage assets in our portfolio of 80 streams and royalties offer substantial organic growth in a portfolio that has grown gold equivalent ounces at a sector-leading CAGR of 26% since 2017 and is on track to grow again this year for the sixth consecutive year. Our investing track record and portfolio performance over the past six years has enabled us to derive a portfolio net asset value that is approaching double our net cash deployment since we started the business.

We trade at a modest multiple compared to our target peer set, allowing for ample re-rate potential as we continue to grow scale, diversification, liquidity and portfolio quality. Our portfolio duration ranks amongst the best with the sector leaders in more than 20 years, highlighting the quality of the key assets and the predominance of byproduct ounces from long-life base metal and PGM mines in the portfolio, which accounts for roughly 70% of our GEOs.

So finally, in summary, we delivered solid financial results in Q2 against a volatile market backdrop, highlighting the quality and value of the portfolio. We increased our dividend by 5%, further enhancing our dividend yield and intend to list on the New York Stock Exchange to increase the investor access and trading liquidity in our shares.

We're on track to meet our 2022 guidance of between 88,000 and 92,000 gold equivalent ounces while delivering on our ESG objectives. Our business is producing strong cash flows, which are positioned to increase as the fully funded embedded organic growth within the portfolio is delivered across a number of assets.

We continue to consistently see a variety of deal opportunities that are concentrated predominantly in the US$100 million to US$300 million size range at the moment, particularly for development-stage assets, which are underserved in these challenging market conditions. We expect the outlook for deal opportunities to improve as more conventional forms of funding prove increasingly expensive and perhaps unreliable in this market and miners require additional liquidity due to cost and capital inflationary pressures.

Against this backdrop, having no debt and nearly US$700 million in available liquidity to deploy and value-enhancing deals for our portfolio is a strategic advantage that we will utilize intelligently and patiently in pursuit of growing our value per share. As major shareholders ourselves, our focus remains on disciplined deal execution and value creation, pursuing sensible and accretive deals in a patient manner rather than pursuing growth at any cost.

I believe that the current market is setting up nicely for an acute need for knowledgeable, patient, long-term capital in the mining and metals sector, providing opportunities for us and our competitors to pursue further value-enhancing acquisitions. We're well placed in this environment to grow value for our investors in time. We sincerely appreciate the support and trust of our stakeholders, and we look forward to providing further updates soon. Thank you.

And we'll turn it back over to the operator, and we are happy to answer any questions anyone has.

[Operator Instructions] Your first question comes from the line of Fahad Tariq with Credit Suisse.

Hi, good morning. Thanks for taking my question. Maybe looking ahead to 2023, if you could discuss how we should think about this production guidance for next year, given the issues, particularly at Pumpkin Hollow and Gunnison. I appreciate that there's no impact to 2022 from the issues at those mines, but I'm just trying to get a sense of are you still confident in the 110,000 ounce average for the next several years? How does this - how do these issues impact next year in particular? Thanks.

Fahad, yes, thanks for the question. Look, we're not providing 2023 and beyond guidance at this time. I think we recently reaffirmed our outlook. And if you look at the combination of things that are included in that portfolio and maybe you contrast that with some of the things that you and others have looked at that have taken place in the sector recently, I mean there are NAVs that are being attributed to assets that are quite a long way out from funding, that are quite some time out, in some cases, from even permitting that are being included in those sort of time frames.

In our case here, we're talking assets that essentially, if you look at our portfolio, I think it's about 90% that are really by value are in the sort of operating and certain ramping categories. We will provide that guidance at a sort of opportune future time. But you can see what the portfolio has done to date, what it's on track to do this year, and I think our portfolio continues to be sort of well placed. So stay tuned, we'll give you the timely guidance shortly.

Okay. And maybe without getting into the specifics, but do you feel there are offsets in the portfolio if, for example, underground development at Pumpkin Hollow remains delayed for some time? Or the Johnson Camp doesn't come online in next year at Gunnison? I'm just trying to get a sense of like are there offsets in the portfolio where you can see production growth?

I guess the best way to answer that would be to look at our natural orientation so far. So if you consider that, notwithstanding that the gold-silver ratio, I think, had gone from this time last year at 68% to 83% and I think we're projecting over 90% for the remainder of the year and then you look at the performance this year even with the underperformance of those ramping assets, our actual volumes that we've included in guidance for this year are tracking at the top end or beyond the physical numbers, excluding the price movement.

So you see our natural orientation and we'll continue to maintain that posture. So that just points to the, I think, just the reality that we always have things in the portfolio that could be pluses or minuses. And we're always going to maintain a sort of slightly conservative posture as we set guidance. And so yes, I believe it's there and we can't really comment at this point as to what's going to happen in '23 and beyond. I just think our portfolio when you compare to the peer set is actually generally more mature than the many others out there from a risk perspective.

Okay. Great. Appreciate that color. And maybe just one last question. On the deal pipeline, you mentioned most of the opportunity set that you're looking at right now is between $100 million and $300 million. Can you just touch on like the types of geographies that you're looking at? I know there's a certain preference for Triple Flag. I'm just trying to get a sense of where these development assets that are in the opportunity set, where are they located?

Yes. Look, we are seeing, I'd say - I've sort of highlighted the $100 million to $300 million almost like on a histogram. We're seeing a lot that are much smaller. I think we've seen the deal activity that took place probably the last year or so in that sort of smaller end become a little more subdued. And then on the big end, we've seen a lot of activity quite recently, including something over $0.5 billion quite recently.

We are active on some larger opportunities, but I think the fees for those is longer and it remains something that's sort of less predictable. And jurisdictionally, I think as Sheldon has sort of alluded to in his comments, we've always said that our primary jurisdiction's really, call it, Australia and the Americas. And only in circumstances where we've got a very solid case, good return, security of tenure where we'd go elsewhere. And I think that framework, particularly in these times, remains as relevant right now as it ever has been.

Jurisdictionally, it's definitely concentrated more in those areas. I think the Orion Minerals one, which is still yet to reach the funding milestone and finalization of the documentation, is sort of the one small exception and there's - we'll see how that unfolds. But that would be really how to think about it. We continue to prioritize our core jurisdictional exposures.

Your next question comes from the line of Josh Wolfson with RBC Capital Markets.

Thanks. On the topic of Gunnison, just because I'm a little bit less familiar with the different parts of the camp. With the recent operating changes, is it reasonable to expect any production for the remainder of the year or 2023 in the event that the economics or - pending the economic decision?

James, do you want to...

Yes. Josh, it's James. So yes, look, the way it's split out is you essentially have the very large entity leach deposits. And then there's the Johnson Camp Mine, which is a series of open pits and related mineralization that is connected to the SX-EW plant that treats the fluids from the entity leach. So for the balance of the year, we expect to receive small quantities of copper in a manner broadly consistent with what we have received to date this year.

As to 2023, the company is working through their analysis of the restart of the Johnson Camp open pits as well as their analysis and test work associated with getting the entity leach up and running again. So we'll have to await their determination on those two elements before making any sort of statement on what we expect from that operation in 2023. But there will be some contribution this year. There's essentially residual copper in the leach system.

Okay. And sorry, beyond the residual component, is there any additional production we can expect? Or is that until they make or sort of determine the economic outcome?

Yes, that's it until they determine the outcome of the work that's ongoing at the moment. But that residual production is sort of not far off what we've been receiving year-to-date, again, which is obviously a fairly modest figure.

Okay. And along the same lines, I know the company doesn't provide the 2023 guidance at least as of today. But looking at the existing 5- and 10-year guidance, what proportion of that would have been represented by Gunnison and Pumpkin Hollow?

Josh, we'll confirm - I think it was around or just under 10% over that time frame. And so then there's just a question of absolute timing that's associated with that. I think particularly in the Nevada Copper case, our team has been to the site fairly recently. We see the line of sight to the production. We're working on with the team on the liquidity side. And I think importantly, we're actually very supportive of what we're seeing with the CEO and the senior team.

And I think the key thing, just given some of the earlier comments, we've got members on our team like John Cash, who've spent decades in Nevada, and actually confirm that from that point of view, it's some of the best ground conditions that they've seen in Nevada. So I think for us, it's just a question of timing associated with that.

And then one last question. With the new U.S. listing, that opens the stock up obviously to a lot of potential shareholders. Is there any evaluation of ways or mechanisms to improve liquidity along with the listing? Or is that sort of a secondary thought?

Josh, it's Sheldon. I'll take that one. I mean I think the first thing we should maybe just make explicitly clear is that no offering of shares is contemplated at this time in connection with the listing. So this is just a listing where we'll have the access to the U.S. market that will free up U.S. retail. And there are some case studies out there in which Canadian companies have cross-listed to the States and seen nice increases in their liquidity. So we see that as a positive catalyst for the liquidity.

Okay. Those are all my questions. Thank you.

Your next question comes from the line of Greg Barnes with TD Securities.

Yes. Thank you, Shaun. As far as I can tell from reading through the Nevada Copper disclosure, they're looking for a funding package in the range of, I believe, around $70 million. Is that your understanding as well?

Look, I'm not going to front run, Greg, the team on that. Look, we've been working with them. And I think our priority with the management team is ensuring that they've got the liquidity they need to get through to commercial production. So they will be putting statements out when they're ready. They've got a number of supportive shareholders.

And I just think the context for us other than the site visit that we've been on is when you look around and you saw BHP's announcement or at least stated in the known figures, it was OZ Minerals and others. You saw Metso last year. There's not a lot of U.S. copper mines with newer built underground mines and open pit projects. In this situation, they're pretty scarce and you've got nearly - I think it's $900 million or so of actual assets associated with this already. We're very constructive on copper and the copper outlook. And I think the team will find the support it needs, and we'll be part of helping them get through that.

For James then, on these higher-grade zones they're trying to get to, how far away in terms of development work required are they to getting there through this more tricky well?

Yes. I mean if you look at the dike crossings, there's basically three dike crossings. When we were at site, they have virtually completed one. They're partway through the second. And the third is not required imminently. But in reality, Greg, the dike crossings, whilst they have represented a challenge for the company, there's no material reason that this should represent a challenge going forward.

The dike - the actual bad ground associated with the dike is only about five to 10 feet thick, depending on the angle of the development, right? So it's not a hugely problematic zone. So it should really be a nonevent.

And then the total meters developed are pretty limited. And I haven't got a figure to hand, but the figure that I do have in mind is the development one has to do to set up all the stoping infrastructure and all the cross-cuts, which is still a fair bit of work to do. But really, there shouldn't be any impediment to setting up that East North zone for proactive mining at the rates contemplated in the study.

Okay. So timing on that, assuming they get the funding, James, are we talking six months, five months? What do you think?

The company is working through the engineering of that, Greg. But with the development that's ongoing, some of the additional infrastructure work that's required to complete that, I think it's going to take a bit of time. But I won't comment specifically on that timing right now. Again, I don't want to get ahead of the company's disclosures.

Then turning to Gunnison and looking through the technical report they put out earlier this year, as far as I can tell, the washing or the cleansing of the wellfield will take 12 to 15 months to wash out the CO2 and what have you. So likely no production there in 2023. And then the Johnson Camp development, it's still a question mark how that goes ahead. And that will take a year or so, I assume. So just judging from that, we're at least a year away from - probably 1.5 years away from additional production from Gunnison. Is that fair?

Yes. I think, again, Excelsior are in a position where they're currently drilling out parts of the Johnson Camp. There is historical drilling that they're looking to assess and prove up. So we don't have a clear picture right now as to what the ramp-up of Johnson Camp would look like, presuming they go ahead with it.

On the entity leach side of things, there's the raffinate neutralization and the wellfield stimulation. Depending on the performance of the wellfield stimulation, it might negate the need for the raffinate neutralization, which could speed things up. But again, they've got work to do in order to determine which of those options or which combination of options between stimulation and raffinate neutralization is the best one. So until they've come to that determination, I think it will be challenging to put an exact timing on when we can expect to see the ramp-up commence - will recommence on the wellfield.

Okay. That's helpful. Thanks James.

[Operator Instructions] Your next question comes from the line of Cosmos Chiu with CIBC.

Hi, thanks, Shaun, Sheldon, and James for the conference call. Maybe first on Northparkes, good to see that there was record plant throughput in May, 682,000 tonnes. I think, James, as you mentioned, that's higher than nameplate. Could you maybe talk about - is this a sustainable level of throughput that we can expect? Or could it go even higher with the expansion now complete?

Yes. Good question, Cosmos. Thanks. Look, the mine had the opportunity to run at those throughputs as they had good levels of surface stockpiles. The E26 Lift One North block cave is actually slightly exceeding plan, which led to part of that outperformance. What it does point to is that there is potentially more capacity in the plant. There are other expansion opportunities to take it beyond even at plus 8 million tonne level. So those expansion opportunities are very much dependent on the availability of new mining areas and ore feed.

So with some of the studies that the mine is doing at the moment, it does represent an opportunity in the future to see further output from Northparkes above the 7.6 million tonnes per annum level. There are various studies ongoing at the moment. So that's something we're watching closely, and we look forward to providing update when those studies work through.

I think, particularly with E22, there's a good opportunity around that. And that's before any additional discovery that they might make with those deposits. They've got a lot of mineralization there, and it's really about maximizing the underground infrastructure in order to fill the surface capacity.

Yes, Cosmos. I think just to add just broader color as well. And I think it's a point we try to emphasize in the headlines and then in some of the details, James did mention the - there's the operating piece where the controllables are going well. But you have seen these weather and logistic events that have created sort of timing issues.

So hence, the commentary on, call it, the year-over-year and then moving to the back end of the year - and we've been seeing, I think, I might have seen Greg's comments even on things like Buriticá where they're performing really well. They're doing great stuff, but there's just timing differences on a quarterly lens. So we're very happy with how the operating teams themselves are performing. Just at times, there's lags between when they get that and when they - when we finally get to turn out. And they're not significant. We don't have like huge working capital delays, as you know.

Of course. And speaking of new discoveries, maybe switching gears a little to Cerro Lindo. Clearly - and a very important asset for Triple Flag. Even better if silver prices were higher, but I'm sure that will come one day. As you mentioned, Shaun, in your MD&A, they've recently made a new discovery, VMS deposit discovery, the Pucasalla. Just wondering, is there any kind of timing in terms of when some of those new discoveries could come in? Maybe not so much - maybe it's Pucasalla, but maybe some of the other ones that you might have highlighted in the MD&A as well.

Yes. I'll ask Jim to comment. We're actually heading out both to Buriticá as well as Cerro Lindo in the next few weeks now that we can travel again. So we'll certainly have more color for subsequent calls. But James, do you want to expand?

Yes. So Pucasalla is quite a long way North of the mine. It's outside of the stream area. The stream area extends to Southeast, which is a very prospective area for VMS mineralization. And they've actually been mining new zones over the last couple of years that have been discovered since we made the investment. So like for OB9, which is the zone that's being mined at the moment, is a copper zone with very high silver grades, which is part of driving the silver performance we've seen of late.

So what we expect for that mine is for them to continue to find extensions for Cerro Lindo towards the Southeast. At the same time, Pucasalla represents the opportunity to provide incremental additional mill feed to keep the concentrator going long after the current reserve life. And then there are certain areas within the stream area that have the potential to yield Cerro Lindo-size deposits of meaningful scale that are currently being explored.

The exploration work associated with that is quite time- and labor-intensive, so Nexa are currently putting in underground development and some quite long drill holes in order to test those areas. And the reason it's underground is, of course, because of the hilly topography in that area. So we're very excited about the extension of Cerro Lindo. It's already significantly replaced the silver reserve from the time of our investment to today. So they have the track record. And they have - it is next flagship assets, but heavily incentivized to extend the life of it through exploration expenditures.

Great. And maybe one last question, switching gears a little bit, once again. It's always good to see - it's great to see that Renard contributing once again. Shaun, could you maybe talk about diamond prices? I'm sure you're closer to the market than I am. It's been a while since I last saw them made. And then profitability at the asset and the sort of longer-term projection too?

Yes. I'm close to the city as in - from my wedding days, so I'm not quite sure but I'm in market myself. Look, I think when you look at the, call it, the restock case that was there, it was in diamond prices close to, I think, $55 a carat. I think the last number was more like $132 a carat, the last batch. And so that obviously points to quite significant contribution margins that are coming from that operation.

I think it also points to the resilience and also the experience of this team who have - are really waiting through and being patient to realize value on assets. So I know there's been questions around timing associated with certainly the ramping assets that we've talked about. Bear in mind, we've had five assets, ramped three of them, we've had two delays. And this is something that was about 1% of NAV that I think we've really demonstrated the ability to not just conserve value but move - create - move forward with that and realize value for our investors.

On the go forward, I'm going to see if Sheldon has anything he wants to add to that. I think, obviously, we're part of the consortium there. The diamond market appears to be reasonably robust. So anything to share?

Yes. So thanks, Shaun. Thanks, Cosmos. It has been a good news story for us. We've been getting - we've been - so first of all, in the smaller-sized diamonds, which Renard has a lot of, we've actually seen stronger pricing. And part of that is the diamond supply chain and part of that is Argyle going offline, and that's actually been a bit a positive catalyst. And that's something that I think that was a long time coming and it was a little slower in coming, I think, than some people thought. But that's now happened and we're seeing some good tailwinds there.

One of the things with the Renard stream, we had been, as you know, not been getting the cash flow from that for a while. That's now been turned on. We're getting the full cash flow from that, and they're actually paying back some of the - what had been effectively picked before. And we saw that in Q2, and I expect we'll see that going forward because the underlying operation is generating positive cash flows, and that's what it's all about. So we're actually really excited about that story. It's a good one.

Yes. And I guess the only other thing, Cosmos, obviously, the world is a pretty complicated place right now with Russia-Ukraine and what's happening with Russia's supply, and that is probably fairly supportive for the supply outlook for this mine.

Yes, thanks again, Sheldon and James. Those are the questions I have and thanks again for answering my questions.

Your next question comes from the line of Tanya Jakusconek with Scotiabank.

Great. Good morning, everybody. Thank you for taking my questions. Just a gentle reminder that I know, Cosmos, you mentioned diamonds for weddings. But diamonds are beyond just weddings, right? So I have a couple of questions, just some admin for us. Maybe, Sheldon, just on the listing on the New York Stock Exchange, when are you expecting that? And what sort of cost should we think about going forward beyond 2022 for this listing?

Tanya, I would say it's pretty imminent that I would look to see filings being made in the next couple of weeks. And by filings, I mean, SEC filings of documentation and then the shares would actually be trading probably on a one or two lag after that. So I would expect the shares to be up and trading if not by the end of the month, then shortly into the next month.

In costs, we wanted to give people some guidance and so there's a number of onetime costs that are going to be coming through in H2. And so we kind of see about US$600,000 of costs in H2 of '22. On a run rate basis, it will be a little less than that. So it's probably going to be maybe $1 million or $2 million on a run rate basis going forward. And those are really just the D&O insurance premiums go up, the audit fees go up when you have a U.S. listing, there's New York listing fees, and there's probably some incremental legal spend as well when you have to just be cognizant of the U.S. rules.

And Tanya, just to add, I mean, we were going through it yesterday. We've actually - even though there's increases, I think we've been pleasantly surprised compared to expectation about a year ago in things like D&O. So that was reasonably positive compared to expectations not that long ago with what's happened to that market. And to your other point, having just gone through my wife's 50th and contributing to demand on earrings, I agree, it's not just weddings on diamonds.

Good. Okay. So Sheldon, so the $1 million to $2 million 2023 per annum going forward would be reasonable to your G&A?

Okay. So I'll leave diamonds and - although I could talk about diamonds all the time, but I'll leave diamonds and G&A for now. And if I can move on to perhaps the royalty in precious metals stream. Can I just get an update on where we are in some of the critical steps to get this going through, just as a reminder? There was just very little in the release.

Yes. I'll start and I'll ask Sheldon to expand. But we've - I think the rate-determining step from our vantage point is twofold. One is just the documentation, which is taking its course. But primarily, the ability of them to raise the additional AUD 20 million because importantly, we've set this up so that really the funds that we put in, as you've seen in other deals, are really contingent upon them achieving the minimum funding requirements that are there.

I believe they're advancing and advancing quite nicely with that. But it's up to them to be able to finalize the AUD 22 million, secure the AUD 10 million. And then, of course, the other will be contingent on the studies and things like that, that are there to follow. Anything you wish to contribute to that?

No, I think that covers that. I mean the legal documentation, I would expect that to be completed in Q3, but it's really the AUD 20 million. That's the gating I don't forget.

Okay. Thanks for that. That's what I thought, but I just wanted to know if there was anything else. And then maybe just lastly, if I could ask, just back on your - on the transaction environment, M&A environment, and thank you for the size of $100 million to $300 million. Can I ask, like, you mentioned more in the development or helping fund development-stage projects. I was quite surprised about the royalties available and it's still there in the market. So I just wanted to ask whether you are seeing any royalty portfolios and/or others out there that would be of interest? Or are there any more? Or are there not the size of funding of the projects?

Yes. Tanya, it's a really good question. The funny thing is if I look back, I suppose, over six years now, the - some of this stuff, you can forecast and you put a lot of time in. Even the recent transaction, I think I heard Bill comment that we tracked that for 14 years. I guess, we tracked it before.

But some of these things emerge and they're quite visible. But I'm always surprised at how some of these things seem to emerge which are less visible. And even last week, we've seen some things in the Americas come to the fore, which just really were not visible.

So I think that fairly steady cadence of opportunity set seems to be a consistent theme that's there. The one thing - and you saw my comments, we've seen - particularly single-asset producers and even intermediates, we've seen majors. I mean look at some of the issuers in the last period. Some on this call have talked about year-on-year operating cost and capital cost increases for majors and others of 7.5% to 15%. We've seen some logistical challenges.

And then we've seen big issuers like Newmont and others talk 12 to 18 month delays in key projects and 15% to 25% increases in capital. So I think the sector as a whole is starting to really reveal some of those pressures. And I think if you're a large company, as some of those guys are, they're well capitalized and it's a bump in the road. But I do believe that for other businesses, particularly with this inflationary environment and you saw the jobs report on Friday, we're going to see more rate increases. And I do think the inflation situation is perhaps with us for some time. Debt's more expensive.

Margins have definitely compressed. And we're seeing some issues with their equity from a year or so ago down 70%, 80%. So equity is very dilutive. I think it's a very constructive environment. So to your question, yes, we continue to see these royalty portfolios. Variable quality, as always. But I think for broader funding, particularly with stream funding by products and otherwise, I think it's setting up actually as a very interesting environment for the next 12 months-plus.

Do you see opportunities of creating royalties? I understand that streams is better taxation for operator to do the - to fund their projects. But sometimes, if you're strained by your abilities and you need the funding, obviously, royalties is another form of funding. Are you seeing opportunities in royalties in some of these?

Yes. The short answer is yes. I mean we're active on some right now. The caveat is they're not usually then particularly large checks for the reasons you've alluded to. And as I say, tactically for us, the analysis I just took our Board through yesterday is looking at some of the recent deal activity, the terms they're on, just challenging our thought process saying, what, if anything, if we deployed, would we perhaps feel different about how do we think about this?

Because we've got significant growth, we've got a lot showing there. But once you've deployed some of this capital, it does restrict your degrees of freedom as you go through it. So I think for us, as we look through it, our prioritization, if you remember, Tanya, on formation, I think is as relevant today as it was six years ago. And by that, I mean, normally $100 million to $500 million checks. We've done smaller, we've done bigger.

But usually, producing on your producing assets worth a lot of optionality on the back end because I think, particularly in this environment, there's more likely to be a lot of these studies, which NAVs have been built on are rearward looking. I think you will see revisions of those in the sector, and I think you will see more delays over time. And I don't believe that's priced in at the moment, so I think that creates a time lag but I think it creates opportunity.

The $100 million to $300 million sort of streams in under $100 million, let's say, on royalties?

Okay, great. Thank you so much.

Your next question comes from the line of Brian MacArthur with Raymond James.

Good morning. Most of my questions have been answered. But can you just remind me on ATO because it looks like you said they're getting leach in there. How much delay there is until you get it? Because it looks like their third quarter is supposed to be pretty good. And the second part of the question then is how that cap works again? I mean, is it on a true annual basis or a quarterly run rate? Just any guidance on how you think that might play out now that, that looks like it's catching up.

Brian, great questions. It's always unfortunate when other people steal your thunder in the sequence, right? Yes. So look, ATO, I think you've seen it's another example, I think, of the patience of this model. If you're an equity investor, you carry the fixed costs and the cash associated with the delays that they experienced with the reagent shortfall.

They've done well to secure supply. They are not limiting the ramp-up with the ounce provision and rock on the pad - crushed rock on the pad. It's really more taking a cautious approach on just as they look at access to reagents from multiple sources.

So you can see their guidance, I think they are guiding, as you said, for - they did pretty well restarting earlier this year, and they're guiding for that to continue to ramp into Q3 and beyond. The cap is not a function of their current oxide arrangement, which is really the initial basis of our investments. Recall it was sort of a high teens return on that back at $1,250 gold. And it was something which really had a pretty quick payback, so we'll have our cash back on the original investment likely this year.

The cap applies really to the fresh rock where we've got no incremental investment due. And that study is ongoing. And I think the company has provided some meaningful guidance, and they're also making major progression on the crusher that they've been installing on that.

But I don't know, James, if anything you wish to add to that?

Yes. I mean the actual cap on that, Brian, comes in after we've streamed 46,000 ounces. And then the annual cap is 7,100 ounces of gold and 59,300 ounces of silver. And that basically takes you slightly beyond the originally stated mine life for the oxide deposit.

So as you catch up here effectively in the near term, you get everything? There's nothing that's going to cut you off or anything?

No, we don't get cut off, yes.

Okay. Thank you very much.

Your next question comes from the line of Mikel Abasolo with Solo Capital Management.

Hello, thank you for taking my question. I think that my question has been partially addressed, but I think from a different angle. The thing is I see stock prices of junior and senior miners coming down, and cash flow is still healthy despite cost inflation that you've mentioned. I mean, in that environment, shouldn't capital be deployed in buying stocks rather than developing mines? Do you see that happening? And if that is the case, I mean, will the logic suggest that a small miner, instead of talking to Triple Flag for capital to develop a new project, that they should be talking to some of the big guys and try to sell their stock to them or sell their mines to them and buy back their own stock? I mean, is this arbitrage that I'm talking about reasonable or fact-based, actually? How do you see that?

Yes, it's a very good and quite broad question. You're talking about the fundamental mix or buy decision that I think every management team confronts as they sort of consider the strategic alternatives over time. And to your point, I think we've seen in the news just this week, the BHP moves on OZ Minerals, which, of course, the management team sort of described as opportunistic despite, as I recall, I think a 32% premium that was implied by that bid.

So to your point, I don't think it's easy to make broad generalizations for different businesses at completely different ends of the development spectrum from exploration pre-revenue development, where they are dealing with some of these supply chain and inflationary pressures.

And then there's a question of their access to funding, which I do think represents an opportunity set. And to your point, if they are going to perhaps look to sell themselves as a means to be able to unlock shareholder value, is that the right time for them to be able to do that? Or is it an opportunistic time for the acquirer to be able to do that?

So I think there's enough - you don't want to sell from a position of weakness. If the teams believe they have the ability to successfully execute in this environment, usually, that can actually have a significant discount to a lot of those assets would trade at, unlock that and set themselves up for a more valuable outcome for their shareholders. Of course, there's risk associated.

So I don't think there's any one general rule that can be applied. I think it's very specific to each situation. But I do think you're going to see a lot of guys out there shopping for copper assets at this time - well, not just copper assets. I think that it's an interesting environment for shopping, perhaps, for some of these strategics.

Okay. And if I may, looking at your presentation and looking at the accounts, I see when you adjust - when you go from net earnings to adjusted EBITDA, I see a line that says decrease/increase in fair value of investments, and I see a decrease of $3.8 million. What's in your portfolio of investments? Is that stakes in miners, by any chance?

I'll ask Sheldon to comment on the specifics, but I'll just say a lot of the people on this call know that for the last six years, our strategy has been very clear that we are - we take very limited equity exposure in our approach to investing in streams and royalties. And ordinarily, when we do, it's part of a much larger funding package. So where we've had limited equity alongside say putting a new stream in place, it's been a small check on a relative basis. And ordinarily, we will look to monetize and cycle out of that in order to minimize that volatility. But Sheldon?

Yes, certainly. And as Shaun said, we have a relatively small portfolio of equity investments. And you'll find that on the balance sheet, it's listed as the investment and then it's referenced in note 7.

So like at the quarter end, it was about $5.3 million. And then note seven gives you the detail as to what that consists of. We've harvested some gains, GoldSpot and Talon, and we've also, as you see, have some losses reflected through there. And it's somewhat volatile when it comes through the income statement, and we don't regard that as part of our core business.

Okay, thank you very much.

At this time, there are no further questions. Are there any closing remarks?

Lisa, thank you. Look, just thanks to all. Look, we're trying to evolve the format, obviously, to touch on the high points and really have the sort of engagement that I think we've got on this call, which we really appreciate. I think the questions are thoughtful. I believe the environment is really interesting at the moment for not just ourselves but for the sector at large.

I think it creates - it sets the table for a good opportunity. And look, at the end of the day, you've seen the track record and really quite an undemanding multiple and implied valuation for a diverse, significantly growing high-margin portfolio that at the moment is trading at a dislocated value compared to where we've seen assets trade - single assets trade in the market with peers.

So I think this team continues to stay the course. We are - we'll continue to be transparent, keep you informed. And on a parting point, I'd just encourage those of you with the interest there, we put out our second sustainability report. I think the best form of flattery is when you've got competitors reaching out actually looking to engage on our approach, which we've been receiving, and we'll continue to be part of evolving that process and thought process. I think it is very key to be a good catalyst for this in the sector, and that's what we aim to do.

So thanks, everyone, and enjoy the rest of your day.

This concludes today's conference. You may now disconnect.