ALTIUS MINERALS CORPORATION Altius Minerals Corporation
Management's Discussion and Analysis of Financial Conditions and Results of Operations
For the year ended December 31, 2023
This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the Corporation's consolidated financial statements for the year ended December 31, 2023 and related notes. This MD&A has been prepared as of March 11, 2024. Tabular amounts expressed in Canadian dollars to the nearest thousand, except per share amounts.
Management's discussion and analysis of financial condition and results of operations contains forward-looking statements. By their nature, these statements involve risks and uncertainties, many of which are beyond the Corporation's control, which could cause actual results to differ materially from those expressed in such forward-looking statements. Readers are cautioned not to place undue reliance on these statements. The Corporation disclaims any intention or obligation to update or revise any forward- looking statements, whether as a result of new information, future events or otherwise.
Additional information regarding the Corporation, including the Corporation's continuous disclosure materials, is available on the Corporation's website at www.altiusminerals.comor through the SEDAR+ website at www.sedarplus.ca.
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Description of Business
The Corporation manages its business under three operating segments, consisting of (i) the acquisition and management of producing and development stage royalty and streaming interests ("Mineral Royalties"), (ii) the acquisition and early stage exploration of mineral resource properties with a goal of vending the properties to third parties in exchange for early stage royalties and minority equity or project interests ("Project Generation") and (iii) its majority interest holding in publicly traded Altius Renewable Royalties Corp. (TSX: ARR) ("ARR"), which is focused on the acquisition and management of renewable energy investments and royalties ("Renewable Royalties").
The Corporation's diversified mineral royalties and streams generate revenue from 11 operating mines located in Canada
- and Brazil (2) that produce copper, nickel, cobalt, lithium, potash, and iron ore. See Appendix 1: Summary of Producing Royalties and Streaming Interests. It also holds royalty interests in two construction stage lithium mines. The Corporation further holds a diversified portfolio of pre-production stage royalties and junior equity positions mainly originated through mineral exploration initiatives within its Project Generation business division.
The Corporation holds a 58% interest in ARR, which through a jointly controlled entity, Great Bay Renewables LLC ("GBR"), holds a portfolio of royalties related to renewable energy generation projects located primarily in the United States that includes 11 operating assets, two projects under construction and several royalties or royalty rights to additional development stage projects. Certain funds managed by affiliates of Apollo Global Management, Inc. (the "Apollo Funds") are the other party to the joint venture.
Additional information on these royalty interests is available in Appendix 2: Summary of Exploration and Pre-
Development Stage Royalties and Appendix 3: Summary of Operational, Construction and Development Renewable Energy Royalties of this MD&A.
Strategy
The Corporation's broader strategy is to grow a diversified portfolio of long-life royalties related to assets and commodities that support established, sustainability linked, macro-scale structural trends that include as our pillars: increasing agricultural yield requirements; electrification metals demand growth; the growing adoption of renewable based electricity generation; and the evolution of steel-making towards lower emissions based processes.
The Corporation particularly seeks royalty interests in projects with long resource lives in order to maximize the potential for future option value realization. Extensive resource lives are considered by the Corporation as excellent predictors of project life extensions and production rate expansions. Such occurrences typically require capital investments by the operators, but as a royalty holder Altius pays no share of the costs incurred to gain these potential incremental benefits. In addition, long life assets provide exposure to multiple commodity cycles and to general and industry specific inflationary impacts on production and development costs over time, to which the Corporation is not exposed, but that naturally result in higher nominal commodity prices. The long average resource lives that remain for most of our royalty portfolio is a key
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strategic differentiator for Altius within the broader natural resource royalty sector that it believes will lead to higher, embedded, long-term investment returns and asset value growth.
Altius also grows its portfolio of Mineral Royalties by originating and adding value to mineral projects through scientific research, exploration and environmental/social licensing initiatives and then retaining royalties upon their sale or transfer to mining/development companies. This is the core function of our Project Generation business, which has a strong track record of internally creating pipeline royalties as well as earning substantial profits from the eventual monetization of corporate equity interests that are often received in addition to the long-term retained royalty interests. The Corporation believes that the royalties it creates internally can provide higher long-term investment rates of return and complement those gained through external acquisition related activity. This represents another unique strategic differentiator for Altius.
Whether considering its organic Project Generation business or M&A based mineral royalty acquisitions, Altius exercises counter-cyclical discipline. Commodity markets are cyclical and volatile and individual asset valuations can change dramatically in accordance with short-term commodity price and sentiment fluctuations. Our mining royalty and mineral property acquisitions have been most active during periods of low cyclical valuations, while operator funded organic growth investments and equity gains/liquidity events typically become more pronounced during periods of better cyclical valuation and sentiment.
Altius has also expanded its focus into royalty financing of the renewable energy sector with its founding 58% ownership interest in ARR, which provides direct exposure to the global transition towards cleaner energy sources. Through investments in US-basedutility-scale wind and solar project developers and operators ARR is building a diversified portfolio of renewable energy royalty interests that currently represent a combined potential nameplate capacity in excess of 15,000 Megawatts (see Appendix 3 of this MD&A) of power generation.
Outlook
General
Most of the commodity prices that are relevant to Altius remain below the levels that are required to incentivize investment in production growth. This is somewhat at odds with current and looming supply shortages and market tightness that many industry commentators are noting with respect to our exposures. We believe that any continuing capital investment deferrals will be a further bullish driver of medium to longer term large-scale supply deficits, and potentially much higher prices, in coming periods for several of our key commodities.
Also, as a royalty business, Altius's exposures are predominantly revenue based and therefore benefit from inflationary environments as its royalties bear no offsetting component of increasing industry-wide operating or capital cost burdens, which ultimately lead to higher product prices and gross revenues.
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We continue to favor an approach of realizing upon organic growth from our highly expandable portfolio of long-life royalty holdings (near term catalysts described further below) over M&A based growth; however the Corporation maintains preparedness and liquidity to act upon attractive external opportunities that may present themselves - particularly during pronounced periods of weak sentiment and hesitancy among competing capital sources.
Potash market constrained by eastern European supply challenges - longer term volume growth signaled for Altius royalty portfolio mines
Our potash royalties stem from several of the Saskatchewan, Canada based mines of both Nutrien Ltd. ("Nutrien") and The Mosaic Company ("Mosaic") and represent more than a quarter of global potash production. These mines are generally underpinned by very large resource endowments that allow for competitive production expansion investments as global demand growth continues in accordance with population growth and increased agricultural yield requirements.
The potash market appears to be returning to relative stability after a period of sharply higher prices that resulted in reduced short-term demand as farmers elected to defer the application of soil nutrients at levels required to replace depletion, at the expense of agricultural yields. Prices have now retreated for potash and other nutrients and demand has rebounded accordingly.
Nutrien recently estimated that full year global potash shipments were 67-68 million tonnes in 2023 with expectations for 2024 global shipments to increase to a range of 68 - 71 million tonnes. If achieved, this would equate to a return to levels near to that predicted by the long-term demand growth trend. Mosaic similarly reported an increase in sales volumes for 2023 and indicated its expectations for the continued rebound in global demand in 2024. Mosaic also announced that an independent audit of the K3 mine and K2 mill expansion was recently completed, which verified a total nameplate capacity of 7.8 million tonnes at Esterhazy, up from 6.3 million tonnes in 2023.
Saúva maiden resource estimate adds life extension and/or production rate increase potential to Chapada stream
Lundin Mining Corporation ("Lundin") continued to delineate its Saúva copper-gold deposit discovery, located 15 kilometers north of the Chapada Mine on lands encompassed by our copper stream interest. During 2023Lundin continued an aggressive drilling program at Sàuva and recently reported an open-pit Indicated Mineral Resource of 244.6 Mt at 0.29% copper and 0.17 g/t gold (721 kt or 1.59 Blbs of copper) and an underground Inferred Mineral Resource of 53.3 Mt at 0.41% copper and 0.26 g/t gold (221 kt or 0.49 Blbs of copper). This compares with Measured and Indicated Mineral Resources at Chapada of 920.7 Mt at 0.24% copper and 0.12 g/t gold (2169 kt or 4.77 Blbs copper). Lundin highlighted continuing exploration work in 2024 at Saúva as it continues to advance expansion studies for the district.
Silicon project continues to emerge as a new world-class gold district in Nevada - maiden resource estimate published for Merlin
AngloGold Ashanti plc ("AGA") continues to advance the discovery of a potential major new gold district, centered around its Silicon Project near Beatty, Nevada. AGA recently provided an update for the 'Expanded Silicon Project', which includes both the Silicon and Merlin gold deposits, that was highlighted by the announcement of an initial Inferred Mineral
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Resource of 9.05 million ounces at the Merlin deposit (283.9 Mt at 0.99 g/t). This is in addition to the more than 4 million ounce Mineral Resource estimate (121.56 at 0.87 g/t Indicated Mineral Resource for 3.4 Moz and 36.03 at 0.70 g/t Inferred Mineral Resource for 0.81 Moz) previously published for the Silicon deposit. AGA has also stated the the project has "the potential for production to average >500Koz over multi-year period", which compares to the >300Koz per annum level it had previously indicated. A pre-feasibility study ("PFS") for the Expanded Silicon Project is currently in progress. The basis of the PFS targets upper oxide ore only while AGA recently stated there is "significant upside potential from deeper ore horizons and nearby exploration targets" and that infill and extension drilling programs continue. Altius holds a 1.5% net smelter return ("NSR") royalty related to the project.
The Corporation has delivered requests to AGA under the terms of its royalty agreement for the registration of our royalty interest in relation claims staked, held or owned by AGA in the Beatty District, that are in addition to previously registered lands that host the majority of the Expanded Silicon Project. AGA has responded that it does not agree that these additional claims are subject to the royalty and the parties have commenced binding arbitration proceedings to resolve the matter in accordance with the dispute resolution mechanism provided for in the underlying royalty agreement. The arbitration proceedings are ongoing with a scheduled hearing date in April 2024.
The Corporation also continues to consider potential strategic alternatives for its 1.5% NSR royalty including a potential full or partial sale, swap type transaction for non-precious metal royalty assets, or maintaining the royalty as a long-term portfolio component.
ARR portfolio growth trajectory accelerating
ARR, through its GBR joint venture, continues to grow its exposure to operating and development stage renewable energy royalty projects that now represent total potential generating capacity in excess of 15,000MW. Four additional projects, representing 1,403MW, were acquired or achieved commercial operations in late 2022 providing additional royalty revenue in 2023, and several additional projects are progressing through development and construction. ARR continues to evaluate new royalty investment opportunities spanning the full spectrum of development to production stage assets which could potentially further augment its growth profile.
On October 31, 2023 the GBR joint venture entered into senior secured credit financing agreements in the aggregate amount of US$246,500,000 with an initial amount drawn of US$117,872,000. The credit facilities provide liquidity that enhances GBR's ability to continue to accelerate its growth trajectory in the renewable royalty sector while maintaining a competitive cost of capital. This access to capital for potential deployment is considered as particularly beneficial in the current market given the generally more restrictive competing equity and debt based alternatives available to renewable sector operators and developers as compared to recent periods. On February 29, 2024 the GBR joint venture entered into a US$30 million royalty investment with Apex Clean Energy related to Apex's 195 MWac Angelo Solar project in Texas which is anticipated to achieve commercial operations in May 2024.
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Additional information on ARR's activities can be obtained through its quarterly reporting materials, which were released on March 6, 2024.
Kami Project Updated Feasibility Study - rare potential to produce high-premium (DRI grade) iron ore and support the growth of EAF based steelmaking
At the end of January 2024, Champion Iron Limited ("Champion") announced the results of an updated project study for the Kami project ("Kami Project Study"). The Kami Project Study evaluated the potential for Kami's high-purity iron ore concentrates (direct reduction or "DR" quality >67.5% Fe) to support growth in the electric arc furnace steel-making sector. The study details a 25-year life of mine with average annual DR quality iron ore concentrate production of approximately 9.0M wmt per annum at above 67.5% Fe. Champion presented estimated capital expenditures, production and operating cost metrics and strategy for next steps, which included a focus on securing a joint venture partner for the project and various pricing and return scenarios.
Altius originated the Kami project within its Project Generation business and retains a 3% gross sales royalty interest.
Rio Tinto recently released Iron Ore Company of Canada's ("IOC") 2024 production guidance of 16.7 to 19.6 million tonnes of pellets and concentrate. IOC continues to commit increased levels of sustaining and growth capital investments with $534 million expected to be invested over the current year. These capital investment levels are expected to continue to impact near term dividend distributions from IOC, while enhancing reliability and production levels in the medium and longer term. Altius holds an indirect royalty interest in the IOC mining complex through its shareholding in Labrador Iron Ore Royalty Corporation.
Project Generation Business Continues to Build Long-Term Option Value
As a result of the general decline in junior equity markets the Corporation has taken advantage of select investment opportunities that have emerged as a result of reduced competition for mineral lands and weak valuations for promising exploration companies.
Altius estimates that approximately 300 kms of drilling will be completed across its portfolio of exploration and development focused equities and royalty holdings during 2024. This is despite subdued exploration investment levels being experienced broadly within the sector.
Non-GAAP Financial Measures
Management uses the following non-GAAP financial measures in this MD&A and other documents: attributable revenue, attributable royalty revenue, adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA), adjusted operating cash flow and adjusted net earnings (loss).
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Management uses these measures to monitor the financial performance of the Corporation and its operating segments and believes these measures enable investors and analysts to compare the Corporation's financial performance with its competitors and/or evaluate the results of its underlying business. These measures are intended to provide additional information, not to replace International Financial Reporting Standards (IFRS) measures, and do not have a standard definition under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. As these measures do not have a standardized meaning, they may not be comparable to similar measures provided by other companies. Further information on the composition and usefulness of each non-GAAP financial measure, including reconciliation to their most directly comparable IFRS measures, is included in the non-GAAP financial measures section starting on page 27.
Annual Highlights
Selected Annual Information
Year ended | ||||||
December 31, | December 31, | December 31, | ||||
2023 | 2022 | 2021 | ||||
Revenue per the consolidated financial statements | $ | 68,957 | $ | 102,047 | $ | 81,778 |
Attributable revenue | ||||||
Attributable royalty (1) | $ | 73,873 | $ | 103,471 | $ | 84,026 |
Project generation | 3,126 | 5,248 | 504 | |||
Attributable revenue (1) | 76,999 | 108,719 | 84,530 | |||
Total assets | $ | 773,538 | $ | 780,584 | $ | 721,401 |
Total liabilities | 161,000 | 171,775 | 192,422 | |||
Dividends declared & paid to common shareholders | 15,191 | 13,854 | 9,947 | |||
Adjusted EBITDA (1) | 56,162 | 89,654 | 66,950 | |||
Adjusted operating cash flow (1) | 37,251 | 75,916 | 49,415 | |||
Net earnings | 10,122 | 39,482 | 38,280 | |||
Attributable royalty revenue per share (1) | $ | 1.56 | $ | 2.27 | $ | 2.03 |
Adjusted EBITDA per share (1) | 1.18 | 1.97 | 1.62 | |||
Adjusted operating cash flow per share (1) | 0.78 | 1.65 | 1.19 | |||
Net earnings per share, basic | 0.20 | 0.82 | 0.97 | |||
Net earnings per share, diluted | 0.20 | 0.80 | 0.94 |
- See non-GAAP financial measures section for definition and reconciliation
Revenue and attributable royalty revenue as well as adjusted EBITDA was lower in 2023 than in the prior two years primarily due to moderation of potash prices from surge levels. Lower coal revenue, as the operator of the Genesee power plant continued to convert to natural gas burning, also contributed to the decline. Adjusted operating cash flow reflected
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lower royalty revenues and higher interest and the timing of income taxes paid. Changes in total assets over the same periods reflects the growth of the Corporation's renewable royalty segment in addition to changes in investments and loans receivables offset by impairment losses on Pickett Mountain in 2023. See additional discussion in Financial Performance and Results of Operations.
Lithium Royalty Corporation ("LRC")
Altius holds minority partnership-based interests in three of LRC's lithium royalties, including Grota do Cirilo (commenced production during the second quarter of 2023), Tres Quebradas and Mariana (both of which are expected to complete construction and begin operations in 2024). During the second half of 2023 the Corporation recognized its first ever royalty revenue related to lithium production from its ownership interest in Grota do Cirilo.
In the first quarter of 2023 LRC, of which Altius was a co-founding investor, completed an initial public offering to raise $150,000,000 and during the second quarter Altius received $8,950,000 as a return of capital distribution to the pre-IPO shareholders of LRC. Altius expects to receive a combination of cash and shares over the next 24 months as described in LRC's prospectus. The Corporation holds an indirect 9.55% equity interest in LRC with an estimated net value at December 31, 2023 of $40,529,000.
Altius Renewable Royalties Corp.
During the year ended December 31, 2023 US$15,950,000 (CAD$21,222,000) was funded into GBR by ARR. These amounts were used to fund ARR's 50% of renewable royalty investments into Hodson Energy, LLC ("Hodson") and Hexagon Energy, LLC. ("Hexagon"). During the year ended December 31, 2023 ARR received a distribution from GBR of US$54,125,000 (CAD$74,985,000) after the closing of GBR's credit facility. ARR intends to reinvest these proceeds into the business as new renewable royalty investment are identified.
Acquisition of Investments
During the year ended December 31, 2023 the Corporation acquired equity investments in its Project Generation portfolio of $1,609,000 and invested in an unsecured convertible debenture of US$4,000,000 (CAD$5,283,000) in Adventus Mining Corporation ("Adventus") with a maturity date of December 31, 2024. The loan can be converted at any time after December 31, 2023, at the Corporation's option, into a 0.63% net smelter return royalty on the Curipamba - El Domo project of Adventus. The Corporation holds common shares in Adventus as well as a 2% NSR royalty in the project (see Note 8 in the consolidated financial statements).
Capital Allocation
During the quarter ended December 31, 2023 the Corporation made $2,000,000 in scheduled principal payments on its credit facilities and paid dividends of $3,778,000 ($0.08 per common share). During the year ended December 31, 2023 the Corporation made $8,000,000 in scheduled principal payments on its credit facilities and paid dividends of $15,191,000 ($0.32 per common share). There were 239,100 shares repurchased under its normal course issuer bid during the fourth
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quarter of 2023 and 611,800 common shares were repurchased and cancelled during the year ended December 31, 2023 at a cost of $12,528,000 or an average of $20.48 per share.
The Corporation renewed its Normal Course Issuer Bid ("NCIB") by which it may purchase at market price up to 1,996,856 common shares, being approximately 4.21% of the 47,430,043 common shares issued and outstanding as of August 18, 2023, through the facilities of the Toronto Stock Exchange ("TSX") or a Canadian alternative trading system. The NCIB commenced on August 22, 2023 and will end no later than August 21, 2024. Any shares acquired under the NCIB are cancelled and returned to treasury.
Financial Performance and Results of Operations
Three months ended | Year ended | |||||||||||
December 31, | December 31, | Variance | December 31, | December 31, | Variance | |||||||
2023 | 2022 | 2023 | 2022 | |||||||||
Revenue per consolidated financial | ||||||||||||
statements | $ | 13,802 | $ | 21,654 | $ | (7,852) | $ | 68,957 | $ | 102,047 | $ | (33,090) |
Attributable revenue | ||||||||||||
Attributable royalty | $ | 15,974 | $ | 23,122 | $ | (7,148) | $ | 73,873 | $ | 103,471 | $ | (29,598) |
Project generation | 121 | 134 | (13) | 3,126 | 5,248 | (2,122) | ||||||
Attributable revenue (1) | $ | 16,095 | $ | 23,256 | $ | (7,161) | $ | 76,999 | $ | 108,719 | $ | (31,720) |
Total assets | $ | 773,538 | $ | 780,584 | $ | (7,046) | $ | 773,538 | $ | 780,584 | $ | (7,046) |
Total liabilities | 161,000 | 171,775 | (10,775) | 161,000 | 171,775 | (10,775) | ||||||
Dividends declared & paid to common | ||||||||||||
shareholders | 3,778 | 3,809 | (31) | 15,191 | 13,854 | 1,337 | ||||||
Adjusted EBITDA (1) | 10,981 | 18,000 | (7,019) | 56,162 | 89,654 | (33,492) | ||||||
Adjusted operating cash flow (1) | 7,698 | 19,224 | (11,526) | 37,251 | 75,916 | (38,665) | ||||||
Net (loss) earnings | (2,215) | 6,825 | (9,040) | 10,122 | 39,482 | (29,360) | ||||||
Attributable royalty revenue per share (1) | $ | 0.34 | $ | 0.49 | $ | (0.15) | $ | 1.56 | $ | 2.27 | $ | (0.71) |
Adjusted EBITDA per share (1) | 0.23 | 0.38 | (0.15) | 1.18 | 1.97 | (0.79) | ||||||
Adjusted operating cash flow per share (1) | 0.16 | 0.40 | (0.24) | 0.78 | 1.65 | (0.87) | ||||||
Net (loss) earnings per share, basic | (0.05) | 0.14 | (0.19) | 0.20 | 0.82 | (0.62) | ||||||
Net (loss) earnings per share, diluted | (0.05) | 0.13 | (0.18) | 0.20 | 0.80 | (0.60) |
- See non-GAAP financial measures section for definition and reconciliation
Total revenue in the consolidated statements of earnings for the three months and year ended December 31, 2023 was $13,802,000 and $68,957,000 which decreased from the comparable periods in 2022 due mainly to lower commodity prices during both the quarter and year as well as the scheduled closure of the 777 mine on a year to date basis.
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Altius Minerals Corporation published this content on 11 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 March 2024 23:09:03 UTC.
