Altius Minerals Corporation

Flora Wood - Director of Investor Relations Brian Dalton - Chief Executive Officer Ben Lewis - Chief Financial Officer Chad Wells - Vice President, Business Development Lawrence Winter - Vice President, Exploration Stephanie Hussey - Director of Finance

Carey MacRury - TD Securities Brian MacArthur - Raymond James Orest Wowkodaw - Scotiabank

Thank you, Liz. Good morning everyone, and welcome to our regular quarterly conference call.

The event is being webcast and you will be able to access a replay of the call in addition to the presentation, both of which are posted on our Web site. With me in the room are Brian Dalton, CEO and Ben Lewis, CFO, both of whom will speak on the call.

We also have Chad Wells, VP, Business Development; Lawrence Winter, VP Exploration; and Stephanie Hussey, Director of Finance available for the Q&A. The order today will be, Brian with a general overview of the quarter, while Ben will follow with a report on the financials.

At which point, we will open up the line for questions. Getting started, the forward-looking statement is on slide two, and it applies to everything we say in our formal remarks and during the Q&A.

And with that, I’d like to turn over to Brian.

Good morning everyone from a beautiful [indiscernible]. It was another quarterly record for royalty revenue and EBITDA on the strength of continuing commodity price appreciation, but also continuing production improvements at several operations.

Chapada continues to perform extremely well with the mine operator recently announced an increase in its guidance for expected copper production, while also continuing to make incremental investments to further improve the operations. While only a year into the deal these higher volumes, while supplying by higher copper prices, are allowing us to start to imagine the significantly shorten payback period for this investment.

777 ran into some production trouble during the quarter that partially offset the better copper and zinc price realizations. We understand that the issues have since been rectified and that production is expected to come back to normal levels by year-end.

While 777 is approaching the end of its forecast mine life, around 2020 or 2021, we know that this is based on reserve estimates that were calculated at considerably lower metal prices. And so we're watching closely and optimistically to see if additional mineralization can make it back into the reserve category at these better metal prices.

After base metals, which represented 46% of our quarter two revenue, thermal coal was the next biggest contributor at 22%. This is largely reflective of mining moving on to lands for which we have higher royalty rates.

Our thermal coal royalties continue to provide significant and reliable revenue amounts, even after being diluted down considerably during the past couple of years. Some of this relative dilution is a result of additions of other types of royalties and some simply reflects that these royalties have no exposure to commodity prices, while everything else has been growing to broader cyclical recovery in commodities.

Some of you have asked about the recent TransAlta announcement on the coal-to-gas conversion into 2021-2022 timeframe and what this might mean for us. Our only royalty affected by this announcement is Highvale, which contributed $621,000 of royalty revenue during the first half of this year and at the book value of approximately $3.5 million.

We have made query to the operator to gain more information about the potential impact to this royalty since the public communication referenced, the conversion to get with some generating unit, but also spoke the increasing utilization rates at others. In any event, this is a pretty small royalty.

Potash account over 10% of our royalty revenue. Potash prices continued to drop during the quarter, but the major impact to us came from rising royalty production volumes, which were up 88% from last year's comparable quarter.

The expansion in Rocanville, in particular, which is Potash Corp's lowest cost and largest operation, increased its capacity from 3 million tons annually to 6.5 million tons. Our royalty revenues in this operation is up considerably as a result.

Note that this expansion required more than $3 billion of capital, of which our share was nil, demonstrating the incredible auction value associated with the royalty model when attached to the long life and expandable assets. In November, we acquired additional royalty lands and royalties at Rocanville that cover some newly expanded and currently ramping up parts of the mine, which are intended to support the operations significant to new capacity growth.

We announced an increase in our investments in Labrador Iron Ore Royalty Corporation during the quarter. We are now 5% shareholders and big believers in the structural sustainability of premiums for both pellets and high quality concentrates of the types produced in the Labrador Trough.

And we are also believers in the operational sustainability of IOC. Our decision to invest in LIORC came as a result of an understanding that its underlying IOC royalty interest was worth more than its market value, making it a cost effective, albeit indirect way, of adding ultra long life iron ore royalty exposure to our portfolio.

The investments, which was facilitated largely by the investment that Fairfax made in Altius earlier in the year, is working very well and so far royalties and operating margins have been growing quite fast. And we've seen that rumors of the debt that the Labrador Trough iron ore mining district has been greatly exaggerated.

On the topic of the Fairfax 100 million preferred share investments, we've also used proceeds to provided 10 million and an 8% convertible loan to Champion Iron Ore, which is on track to restart the Bloom Lake mine in the first half of 2018, to expand our Rocanville royalty at a cost of $8 million in upfront stake payments and to invest approximately $11 million with combined equity and royalty financing with Wolfden Resources. We've now drawn down the $400 million under the Fairfax facility and we are continuing to find innovative and accretive ways to deploy the proceeds that we believe will support our long term growth.

You will hear more about that in the coming year. Ben will speak more to debt repayments in the quarter and going forward, but I’ll point out that we ended the quarter with $29 million in cash, $67 million available on our revolver, and this didn't include the $50 million that was drawn subsequent to the quarter end from the Fairfax facility.

Finally, I'm just back from the Scotia Mining Conference. The recent media articles describing Glencore and Ontario Teachers’ $300 million creations of the supposedly first ever diversified mining royalty company caused me to receive lots of good natured ribbing.

My typical response was that it sure sounds like a great idea, too bad we didn't think of it. I might have also quoted [indiscernible] a time or two.

Seriously though, we've had lots of questions from investors on how we see base core impacting us. And so I'd like to preemptively address it a bit here.

First, let me draw your attention to a slide in our presentation that indicates the relevant size of the diversified metal sector by market cap compared to the collective size of the diversified royalty companies. And we had another $300 million with that royalty company volume it still looks fairly nascent with lots of growth room for everyone when compared to the precious metal space.

When I think back to the emergence of the gold royalty sector, strikes me most is that its growth was what really fueled its growth. In other words, the more relevant it became the more deep deal flow emerge to avail of it.

Secondly, this is not really a new development [though], pension funds and insurance houses have been interested in this space for several years now, and have shown up at several of the deal processes that we’ve been involved in. Diversified mining royalties represents low risk annuity style assets that fit their portfolio criteria, so it's no surprise to see them here.

In several cases, we've even prepared coal bids with them are attracted financing from them. As many of you have heard me say previously, royalties are perfect for partnering around, 12 of our 15 paying royalties are held within partnerships.

So in summary, we welcome the advent to base core and certainly look forward to continuing to work with them on opportunities in the future. We are also delighted to see the media attention it has garnered that describes the great merits of the business model is positive for drawing investor attention to our own 20 year track record.

And with that, I'll turn over to Ben Lewis, Chief Financial Officer, to take us through some numbers.

Thanks, Brian and good morning, everyone. Attributable royalty revenue was $17.9 million for the quarter compared to $9.9 million a year ago, and reflects commodity price appreciation, increased production volumes and our increased iron ore exposure.

Adjusted EBITDA in the second quarter was up significantly as well, year-over-year, to $14.6 million for an 81% margin. We saw a $0.07 strengthening of the Canadian dollar against the U.S.

dollar in the second quarter. This has the effect of lowering revenue from U.S.

dollar denominated sales when translated to our Canadian dollar reporting currency, but it also lowers the cost of our U.S. dollar denominated revolving debt facility.

Looking at the breakdown of revenue. You can see that we have become very well diversified.

We’ve included a table in the MD&A and in the presentation that shows our highest sensitivity to changing copper price as well, where 10% move in copper or by $0.30 would change our annual adjusted EBITDA by about $1.8 million. Taken that further a dollar per pound move in copper to $4 dollar, would equate to roughly $6 million change in EBITDA, around 9% of our annual estimated run rate.

The single biggest change between Q1 and Q2 this year is the contribution from our increased share position in Labrador Iron Ore Royalty Corporation, which Brian already referred to. We now own approximately 5% of the company, which acts as a flow through vehicle for royalty and dividend income from the operations of IOC and Labrador.

In terms of balance sheet and liquidity, we ended quarter with $29 million in cash and debt of approximately $70 million. We repaid $8.7 million of debt in the first half of this year and have another $13 million as scheduled payments on our term debt for the next 12 months.

Our equity and investments had a quarter and total market value of $103 million. About $67 million of this was related to Labrador Iron Ore Royalty Corporation with the remainder comprised of our project generation business junior equity portfolio holdings.

In our quarterly project generation report on our Web site we’ve provided some transparency around our positions in juniors, and we’ll continue to update this on a regular basis. As you will see from our Web site, our largest positions are in Adventis, Alderon, and Champion.

Subsequent to quarter, Adventis announced $10 million bought deal equity financing to Adventis’ Exciting Equator project and to which we subscribed for pro rata share. Our junior equities are allocated to our project generation business segment and serve to self fund that part of our business over the full commodity cycle.

The performance of the junior investment portfolio has been relatively flat in the last few months, reflective of the broader period of consolidation after the initial strong rebound from early 2016. We do expect to add more junior equities to the portfolio in the coming months through the vending out of mineral properties to third parties.

The exploration portfolio currently consists of about 40 projects, covering a wide range of commodities and spread across several high quality jurisdictions. More information on these projects can be obtained by visiting our Web site.

In addition, for those who would like more details on the project generation business and expenditures, see Note 17 to the financial statements which breaks-out the PG performance over the comparative periods. I’ll end up with a little housekeeping before handing it back to Brian.

As we previously disclosed, we are changing our fiscal year-end to a calendar period end with December 31st being the short eight month period. We'll then pick up in January 2018 with the New Year, and we'll provide revenue guidance early in the New Year, which we would obtain mine plans from our respective royalties and stream.

We hope this change will make tracking Altius a little easier for all of you as we align with mine producers and follow a regular reporting calendar. Now back to Brian.

Thanks, Ben. I'd like to close by drawing attention to the increase to our dividend to $0.04 per quarter that was approved by our Board yesterday.

This decision was made in the context of a broader capital allocation discussion. And as we first and foremost recognized that we hold plenty of liquidity to continue to capture growth opportunities.

This allowed us to focus surplus cash flows to more aggressive debt repayments and to returning capital to our shareholders through this higher dividend and share buyback as circumstances allow. I'll now hand back to Flora to open floor for your questions.

Thank you, Brian. That concludes our remarks.

And Liz, we’d like you to give the instructions to open up the Q&A.

Just a question on the Fairfax funds, I mean, clearly there is a deadline to withdraw the $50 million. I'm just wondering do you see any near term opportunities to deploy that or is it just more of a expiring deadline having a capital to use in the future?

There are opportunities, whether or not we close on any of them, remains to be seen but there is probably more out there that we're seeing than I would have expected. I thought it was even commented on earlier calls that the pipeline was looking pretty dry for advanced stage opportunities.

But there are some things little bits and pieces here and there. And there are also an increasing number of opportunities to get involved with financing projects that are getting ready for development.

And that's a big focus area for us right now. So we wouldn't have done it if we weren't confident that we could deploy effectively and in a way that will serve our growth needs, going forward and to do it accretively.

And I'll point out as well that already this year we made investments somewhere over $60 million, which in fact have done quite well. So yes, we were confident in making the decision.

Would you pay down or even [prosper] for the revolver in a short term, just view that later or…

I see that money as being for growth, to be honest with you. But when I look at cash flows that we're generating right now and the surplus is beyond minimum required debt repayments and what not, getting more aggressive with debt repayment is certainly a priority for us.

And particularly with respect to the revolver, because anything we put on that, it doesn't go away, it's still there in available liquidity for us; so yes -- high priority in our capital allocation discussions yesterday with continuing to obliterate that debt.

And then another question, I know your guidance is going to change in January. But you previously had a number of about $66 million, I believe, or there’s a range around that number.

I am just wondering what you are assuming for lift of it ends with it consistent with the current levels or number was baked in the guidance?

Well, that would have taken us -- so under the previous year so that guidance would have ended for this April coming up. The premium for the products royalty is producing right now are -- they're not getting smaller, they're getting bigger if anything at the moment, it seems to be a bit of an effect of the winter clampdown in China and pollution are driving demand for super high quality products and driving prices up there.

I note that IOC actually left a fair bit of inventory on the [wharf] at the end of the last quarter, so there should be -- should be that there. So really it comes down to the Board to decide to hold on to capital for any kind of other opportunities.

But beyond that, there's no reason why what we've been seeing recently from IOC and then for -- shouldn’t continue, business is doing fantastic.

Couple of things, just first of all, you did comment again that your original guidance and I realized that this is all going to change to $55 million. In your previous press release, you talked $67 million to $72 million, I noticed this time you’re not reaffirming.

Has anything changed or do you just elect not to do that because we're going to get new guidance in January and its irrelevant?

Yes. Well that updated guidance was from our -- when we released on our -- preleased on our quarterly numbers and really all you got to do is take the last quarter.

And assuming prices stay the same and add the last quarter on to the -- for what would have been our last quarter, and that's the number you would have come to; so nothing has changed; prices seem to be more or less in the same range; and we're not nearing of any weirdness to up or down as far production level so, as per and yes we will obviously have another good look at how the next year plays out. And of course, commodity prices will be the factor in.

Sure. And I just wanted to make sure you didn't see anything different from when you did that before.

The other thing -- bit of an --. The other question that did ask with [indiscernible] and I'm just curious on these preferreds, there this -- an income tax as you’ve got to defer $15 million of the $50 million and the tax rate.

Is there anything -- is that going to be an ongoing volatility in the numbers, going forward? Or what exactly is that?

You’re getting in for really complicated stuff here now, Brian. But it's basically a classification between equity and deferred tax liability.

And is kind of a rare occurrence but it’s a -- because of the compound instrument, we have to classify the deferral tax or group that separately from the preferred security. So you’ll see the preferred is actually lower on the statement of equity as well.

So there is no volatility. You will see it bump again with the next draw down but nothing unusual there or anything.

So does it count when you are doing covenants then that the full rate or at an adjusted rate, I guess that’s where I am really going with, is there is any impact on anything there?

No, we adjust for the preferred securities and we consider that deferred tax really part of the preferred security as well. So it doesn’t affect our net assets or anything like that for that purpose.

Just a question more about your preferred mix going forward in terms of the assets and the royalties and the stuff. You seem to be growing your concentration in iron ore, both with the 5% position Champion and the Alderon positions.

Is that -- should we assume you kind of reached your max in terms of exposure to Canadian iron ore and we’re likely going to see you make investments in other commodities, moving forward? Or is there potential to even still to grow that?

I'm just curious more from a concentration perspective?

There is room to grow. And if you look at the -- one thing we look at every so often is what’s the total value of the traded value of the various big commodities that are out there even base or bulk and iron ore is the heavy weight in the world.

There’s probably -- if you created a pie chart and we got 30% of the traded value in the market. I think we’re somewhere in the 15% range, right now.

But that said, what’s going on at IOC right now, I know it's caught a lot of people by surprise. The fact that IOC was supposed to be the first victim of the flood of iron ore and the reality that it probably became one of the highest margin operations in the world is pretty important in the big picture.

And now we’re going to watch all of it, we’re going to get to watch and see if Champion can deliver on its operation to restart the Bloom Lake if it continues, if it will benefit from these higher premiums. If all of that plays out, it seems pretty logical to me that all eyes have turned to Alderon.

And you got to remember we have 3% royalty on that thing. If that is the next one in line, Champion works out.

That’s $25 million or $30 million a year royalty to us. So we have good exposure through IOC, but we’ve also got some other baked in there that could naturally grow, we’re [indiscernible] doing anything.

It’s a little bit of wait and see time, I think right now. Meanwhile, we’re benefiting wonderfully from the growth at IOC.

Operator And I am not showing any further questions at this time. I’d like to turn the call back to our host for any closing remarks.

Thank you, Liz. I think that’s all we’ve got to say on the call today.

And we’ll look forward to talking to you after December 31st year end.

Thanks everyone, and happy holidays.