Triple Flag reports results of first public quarter

The recently released June-quarter financial results from Triple Flag Precious Metals (TSX: TFPM) aptly encapsulates the vision founder and CEO Shaun Usmar has been working up to since starting the royalty and metals streaming business in 2016.

Fresh from undertaking Canada’s biggest mining initial public offering (IPO) in nine years, raising $250 million in May, the company has emerged as a more agile, ambitious metals streamer with high growth coming out of the gate from its first public quarter.

Triple Flag reported record quarterly metal sales of 22,537 gold-equivalent ounces, up 40% over the second quarter of 2020; net earnings of $18.3 million were up 100% compared to a year ago; revenue and cash flow were each up roughly 50%; and it declared the first company dividend of $0.0475 per share or a yield of about 1.7% — an industry-leading figure.

Triple Flag’s business model provides up-front financing to miners in exchange for a share of future revenue or production.

It has amassed a portfolio of 16 streams, including high-profile assets such as royalty interests in Alamos Gold‘s (TSX: AGI; NYSE: AGI) Young-Davidson mine in Ontario and Kirkland Lake Gold’s (TSX: KL; NYSE: KL; ASX: KLA) Fosterville underground mine in Australia.

Usmar tells The Northern Miner Triple Flag has been exercising restraint as a portfolio company of underwriter Elliott Investment Management. It planned to take the company public late in 2019, but management ultimately pulled the offering, citing ‘challenging’ market conditions.

“When you think about private funding in the mining space, there have been a lot of great examples with syndicates where the time horizon sometimes is incompatible with where the commodity cycle is going,” says the former Barrick Gold (TSX: ABX; NYSE: GOLD) executive in an interview.

“With the successful completion of our initial public offering (IPO) during the quarter, which was the largest TSX-listed mining IPO since 2012 by size and market capitalization, and the largest precious metals IPO globally by market capitalization globally since 2008, Triple Flag is poised to continue its growth,” he says.

“So, I think if you find a capital provider with essentially an infinite time horizon, like Elliott, you can think through risk asymmetry and optionality in a more sophisticated way. That’s a rare thing. And so after doing a bit of homework with Elliott, I could see that that was what they represented.”

The founding idea for Triple Flag was based on a five-year plan initially to be able to see if the team could invest on average a couple US$100 million a year in good deal flow to get the critical mass to then naturally transition into the public realm.

Usmar and the team have skin in the game, owning about 5% of the issued and outstanding shares in Triple Flag. “We built this as a large part of our personal net worth. We know it’s essential to pay a dividend while investing in keeping the business growing.

“So, on the one hand, we feel it’s important to balance those priorities, to generate a lot of cash and to pay increasing dividends over time. We know that dividends are an important part of the overall return equation for investors,” says Usmar.

Triple Flag’s dividend yield of 1.7% is industry-leading, with the majors and intermediates paying somewhere between 0.8% at the low point and 1.3% at the high end.

“We are paying a higher dividend than anyone in the space. That’s not accidental. We know we can comfortably pay that dividend without violating our ability to continue to grow. Like Franco-Nevada, over time, we intend to aspire to be progressive and how we continue to grow that dividend over time. That’s really what we want to do.”

Triple Flag has also released new ten-year guidance, showing metal sales rising from 83,000-87,000 gold-equivalent ounces in 2021 to a five-year average of 105,000 oz. per year between 2022 and 2026. The existing portfolio maintains that level of sales for a decade to 2031.

“We’ve been able to get into the deal flow and build this up and getting to the critical mass as we did. We recently signed a deal on CMOC’s Northparkes copper-gold mine in Australia, which is the best project we’ve seen come to market in five years. It’s one of the handful of deals we’ve acquired through competitive sources. We’ve done 16 deals to date, 12 of them done by putting ideas in front of mining companies,” he says.

That is a critical differentiator from the cacophony of the other junior royalty and streaming companies. “We’re actively creating new royalties, whereas most other juniors in the space only collect existing royalties or streams.”

“The markets have obviously it improved. But our success is very much a function of the portfolio objectively maturing to a state where we clearly executed on our deal flow objectives. The portfolio was in such a good shape to be able to make the IPO decision.”

Usmar says the team looks at many projects before deciding to pursue a deal.

“We test a lot of frogs, and other competitors would do that too. But, since we started in 2016, all the Bay Street bankers were saying: ‘Well, you missed all the good stuff. Like there’s all these big de-leveraging things that we did with Barrick and Glencore and others over that time, and there’s nothing to do’.

“However, we’ve been consistently busy. We’ve seen over 500 deals for the 16 that we’ve done.

And I think we put many ideas in front of people to see if we can find things that really start a conversation. And if they’ve got a sensible use of proceeds, there’s an opportunity to be able to create something for our investors and their investors at the same time.”

“The pipeline has been robust and busy,” says Usmar.

The company has 75 assets, including nine streams and 66 royalties. These investments are tied to mining assets at various stages of the mining cycle, including 16 producing mines and 60 development and exploration-stage projects.

Shares last traded on August 23 at $13.09 each, down more than 16% since the IPO, capitalizing the company at $2.05 billion.