Flora Wood - Director, IR Brian Dalton - CEO Ben Lewis - CFO

Thank you, Candice. 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 this call in addition to the presentation that's now posted to our website. With me in the room are Brian Dalton, CEO; Ben Lewis, CFO, both of whom are speakers on the call.

We also have Chad Wells, VP, Business Development; Lawrence Winter, VP Exploration; and Stephanie Hussey, Director of Finance. The order today will be Brian with a general overview of the quarter and his thoughts of where we are in the cycle while Ben will follow with a report on the financials and come back to Brian for the conclusion.

Then we will open up the line for questions. Getting started, the forward-looking statements is on Slide 2 and it applies to everything we say, both in our formal remarks and during the Q&A session.

And with that I'll turn over to Brian.

Thank you, Flora. And I'd like to point out this is our first time with Flora helping organize and we'd like to give her a big welcome from everyone here at Altius who's having a great contribution already.

This call has little extra significance for me as we will hold our AGM later today and we will be celebrating our 20th anniversary as a public company with a big new land stall [ph] party here in St. Johns tonight.

When I think back on also the bunch of 20 something university seats, starting up a junior exploration company in 1997 just as BRX [ph] was imploding. I realized that only a tiny handful of peers in that time had survived, that alone become real businesses.

Now the royalty revenue that Altius collects every two days is equal to the total amount of cash that we raised from our IPO and our assets were more than 500 times the total starting market capitalization value. I'd like to assure shareholders though that we are far from done, we are still one of the youngest management teams around and we love this crazy cyclical mining business; so happy birthday Altius.

And speaking of birthdays, my personal apologies for missing the last investor call but as many of you know I was in a delivery room being generally useless while experiencing the birth of my son, Henry Paul Dalton [ph]. Melissa and Henry are doing fabulous by the way and thank you very much for the many well wishes that we received.

Now on to the quarter; the contrary events of the down cycle sure started to look good this quarter. Adjusted royalty revenue at $15.1 million was up 12.7% over the prior quarter and 81.9% over the year of all comparable quarter as both commodity prices and volumes at most of the mines improved.

Adjusted EBITDA of $12.6 million represents a margin of 84% which compares very favorably to 77% of the prior quarter. This margin improvement generally relates to the revenue growth but the fact that it's very little in way of any fixed cost addition, so it's just revenue side very little underway of fixed cost so that's what starting to drive margins.

Subsequent to the quarter end in August, we drew down a further $25 million as the second traunch of the -- we have so far drawn $50 million of the $100 million that's available to us and spend the money on opportunistic investments with the return of potential investment time horizon fit our investment criteria. Fairfax is an iconic investor and valuable partner and we recently welcome Guy and Nick to our Board as the Fairfax nominee.

Guy's background is ideally suited to our royalty business and we see lots of scope to continue to collaborate with Fairfax on opportunities of all scales. Ben will speak in more detail on our liquidity but you can see from our public documents that the main uses of our cash went to repayment of debts, the repurchase of shares under our normal course issuer bid and new investments, particularly in Labrador trial of iron ore.

We added a little more to our Labrador iron ore royalty company position during the quarter and we did a $10 million, 8% convertible with a royalty rate of first perfuse [ph] with Champion to help them refinance to restart the Bloom Lake iron ore mine early next year. Our diversity and portfolio balancing strategy is also beginning to delivery as hoped with copper and zinc together now accounting for approximately 46% of our revenue and with thermal coal revenues being diluted as a relative percentage down to 23%.

The pass-through of royalties and dividends from Labrador royalty corporation is also starting to become meaningful and you now see iron ore showing up on our diversity pie chart as a result. What we see for commodities going forward; copper is our single largest commodity exposure now and one of the recent move has been fast and furious.

We wouldn't discount a pullback in the short-term. Bigger picture, our eye is on incentive pricing for new supply and we still see the market needing closer to the $4 level to trigger and real rate supply response.

Moreover the sector executives and bankers will likely need to see $6 to believe $4. Zinc prices continued on up towards more rational supply demand based clearing levels and the net coal price continued its rollercoaster ride but is settling into a band that is based well about the 2016 lows.

Iron ore seems to have completely missed the memo on its consensus price and been a short-sellers absolute nightmare this year. Our fundamental and we believe long-term sustainable bifurcation of the iron ore market really took hold this quarter as low quality ore such as most of Australia's recent incremental supply growth begins to attract deeper discounts and high quality ore such the typical Labrador trough product is commanding much wider premiums.

It's simply not enough to track the 62% benchmark anymore. I realized potash prices this quarter are up 15% from the same quarter last year, bouncing back from a 10-year low supply rationalization kicked in and some of the non-incumbents in this sector began to tuck their tails between their legs in response to the incredible barriers entry in that industry.

A silver lining for us but the still relatively low prices in potash is the manner in which volumes were deflected to the best and lowest cost mines in the world in response. Despite global potash demand growth of only 4% last year compared to the prior year, our royalty volumes were up 34% in the first half of the year compared to the last.

We don't mind a few years of low prices if it means market share gains on these multi-century assets. On revenue guidance, we're clearly running ahead of our annual estimates and our assumptions for some of the commodity prices have proven to be very conservative.

However, it's still early in the fiscal year and prices are displaying a high degree of volatility; so we've chosen to differ a review of guidance until we post our mid-year results. And with that, I'll turn it over to Ben Lewis to take us through the numbers.

Thank you, Brian and good morning, everybody. I'll start by following up on Brian's point about royalty revenue growth coming not just from commodity price appreciation but also from increased production.

To illustrate this point we've added a table on both, our MD&A and our slide deck to breakdown the average realized price for our royalties on a unit basis for each of the periods along with attributable production in tons. We hope you will find these new tables helpful.

One thing to point out that it's typical to see a lag in revenue growth on production and pricing at smelter return royalties. So we're yet to see the full benefit of the recent run-off in copper prices that started over the summer.

The 777 royalty is impacted by the normal timing delays between delivery of concentrate and payment to the mine operator and also cuts up a month prior to our fiscal quarter end. You can see from the table that production volumes are up in every commodity except met-coal year-over-year.

Chapada is comparing a full quarter to a partial quarter so not really a fair comparison but potash, for example, is up 40% as the ship-to-production at Rocanville and a recently completed expansion that is coming through our numbers. Met coal production is down 10% but the unit price has more than doubled year-over-year.

Thermal coal production is up significantly with revenue following although some production came from lower rate royalty lands. In our year end reporting we provided sensitivity data showing impact that commodity price changes could have on our revenue.

We've updated this to show the sensitivities on an adjusted EBITDA basis which is a better proxy for pretax cash flow. You can see from this table that copper and zinc together are the main drivers to changes in our revenue and EBITDA.

Production changes are also key factor but our revenue guidance for the year has the potash production volume already built in. And now a few words on our cash flows and financial position.

This year so far we've repaid $5.4 million in debt bringing our debt balance to a comfortable $73 million. We have ample cash and investments on-hand to wipe out our debt if we so choose.

At July 31 our cash balance was $8.8 million and the market value of our investments was $88 million. In addition, we have additional borrowing capacity on our debt revolver of $67 million and an additional $75 million available from our Fairfax preferred securities; this is before the dry down [ph] that happened after quarter end and we have begun to put that money to good use.

As for our cash flow statement, most of the cash was used during the quarter to invest in royalty related companies; we invested in $10 million in Champion Iron Ore and formed a convertible debt. Champion are well underway in their plans to restart production of the iron ore mine at Bloom Lake.

We understand that the process of raising restart capital is going very well and Champion expects to finalize their financing package very soon. We expect that their premium product and the new costs conscious approach will make this a profitable mining operation.

During the quarter we also invested an additional $13.2 million in Labrador Iron Ore Royalty Corporation which brings our holdings in the company to around 2.5 million shares or just under 4%. And as Brain said, this past year of dividends from iron ore income has become meaningful to us.

I'll now hand it back to Brain to summarize and cover the outlook.

Thanks, Ben. I've spoken lots in royalties and commodities today but don't overlook while it's happening right before your eyes with our PG business, this is our project generation business or exploration business.

Or with respect to the earlier stage royalty bets we're making. Adventis Zinc in particular which we cofounded earlier this year made some great news yesterday that you should all checkout.

Our copper Spinco is coming next. This is the part of the cycle that let's these opportunities out of the incubator and into the world which in turn explains both Chad's well-earned promotion and new responsibilities and our collective excitement in welcoming Andre Gomand [ph], perhaps the best PG executive ever in [indiscernible] royalties to our board later today when we have our AGM.

I'm also delighted to welcome Flora Wood and Mark Raguz to our team. Flora came on to better professionalize how we interact with you, our shareholders but is also turning out to be a real contributor to our corporate development functions.

Mark is now leading our efforts to search out screening through and analyze new royalty opportunities and has already shown us how we will help take our game up from here. Finally, I wish to express my great gratitude to Susan Sherk who will be retiring from our board today.

Susan has been the quiet but indestructible moral fiber of Altius over the past 11 years as its displayed it into a real business. Our record with respect to leading edge governance, social responsibility and social licensing, an award winning environment stewardship, our partner for legacy with Altius.

Thank you, Susan. I'll now hand back to Flora to open the floor for your questions.

Thank you, Brian. That concludes our prepared remarks.

And Candice, we're happy for you to give instructions taking up the lines.

Hi, congratulations to everybody on everything, that would be number one. Number two, the question is, Kami -- are there any insight you could offer as to where the Kami is going?

I'll take that. Thank you for the nice comments and the question.

We don't have any specific information that wouldn't have been -- has been published with respect to Kami Project of all iron ore. We are -- we remain a big shareholder and very interested participant there, we obviously have a big royalty on that project but we don't have board positions in the company and really no great insight beyond what the rest of the market has.

But I will point out that something that I mentioned earlier in the call about the bifurcation that's underway with respect to iron ore and the massive spread that exists in the market now between high quality and low quality is very good news for the Kami Project and in fact all projects in the Labrador trial. The super high quality high iron content, low impurity concentrate to Labrador produce are getting premiums in the market upto $30 to $40 right now, so when you see $70 or $75 iron ore that's not the real case when you're talking about Labrador products and potential Labrador products.

And so these high quality concentrates are in quite short supply and it's actually because of all of the low quality material that's coming out of Australia that these Labrador concentrates are becoming more important and more valuable because they are required now to blend with the low quality incremental big supply out of Australia. Sorry, I can't really answer anything specific about Kami or the Alderan project but trends are very positive for the Labrador trial drop generally and that explains the large view while we made it a focused investment area over the past 12 months or so.

Thank you. I do have a follow-up question and it's based on my uneducated perspective of this.

However, my intuition indicates to me that the cost of building a mine that Kami is just a very large expense. Am I accurate about that or is that just my lack of knowledge as to what's really happening?

Yes. I mean it's a major industrial operations that's being proposed, iron ore mines are big capital item.

Again, I'm not speaking specifically here but generally, one of the things that's happened over the past four or five years is the commodity super cycle imploded is that capital costs have come down considerably, everybody was trying to build four or five years ago at the time when Alderan completed its capital cost estimates. Every miner, every oil and gas company sold everything, all equipment and everything was quite inflated.

That's how it come back to [indiscernible], so you're seeing right across the industry that the capital cost index has retreated somewhat. There have also been positive development with respect to port infrastructure in Labrador, so that ports are in place now, build and ready; it's certainly better than whenever the estimates will appear but I tend to be just where at my fall [ph] in the long run.

Okay, thank you very much. Again, congratulations, I've been with you guys when the revenue was around $3 million.

So quite an exciting ride here.

Thank you very much.

Thank you. Could you talk about a couple of the more promising things in your project generation portfolio, particularly on new ideas in zinc or copper?

Well, that's like telling me to pick between children. In terms of copper and zinc, both voted metals have been important [ph] for us for a few years.

We -- when everybody else ran away from the exploration sector a few years ago, largely because they had to because either there were no budgets from corporate or because the capital markets were closed, that's when we got really busy. So we have a very large portfolio of projects in Chile in particular, that we assembled through all that downturn, we were able to pick up most of that land from scratch new staking; so not with big underlying incumbent or option payment.

We're pretty excited about that and we expect that that portfolio will form the crux of the next spinout out of Altius, the new copper company that we've been pretty busy on over the past couple of months. And it will -- in many ways it will [indiscernible] like what happened with Adventis earlier this year which is the zinc focused spinout; so I didn't quickly, briefly mentioned on the call that Adventis announced yesterday an option joint venture agreement with Salaza [ph] Resources for a zinc and copper rich polymetallic project.

We've helped with that work and it's an exciting project and exciting resource but it's also a ridiculously exciting exploration project, so we're very optimistic about that one. What else would I touch on -- and we've actually been really busy, do not think we're comfortable but we've been really busy for a while now in Finland and we have extensive land holdings all through that country with a focus -- one area that's for nickel but a lot of ground that we're finding and making early stage discoveries on for gold.

So we're pretty confident that over the next six months or so we're going to be able to put some nice deals together and bend out that ground and convert it into nice equity and royalty position. So if anyone on the call is looking for a position in Finnish coal, give us a call, we've got a lot.

Thank you.

Good morning, gentlemen. I can't tell you how well impressed I am about what you've accomplished and I know how hard working your team is.

With respect to the iron ore, some request that you protect the bit because I think that it's clear that your folks have been Labrador or [indiscernible] were very good one because of the cleanliness of it and you have interest in show me awake [ph], it also in Kami and [indiscernible], and you hope it all comes together I would think. But let me start by mentioning the project that you have with the big royalty with real -- and it's very down anything, I think they have a couple of years left.

And also if you could perhaps see nobody speculating; what your hopes are that in timeless what they happen in the iron ore trial; the Labrador trails?

Thank you for the questions. We're pretty bullish on the Labrador trail.

Long haul we were -- yes, we were really busy in the last cycle and we were opportunistic and became a big land holder. We've got a whole bunch of different types of interest there and obviously the iron ore price got hit pretty hard in past two years as big new supplies came on but it's been quite impressive to watch the market work through that and it's been even more impressive to watch the more important role that Labrador type concentrates are taking on in a global thing.

So tails are the demise or the rumors of the demise of the Labrador trail has been greatly exaggerated and if the market wants to beat up these stories, we're more than related to tackle them. With respect to the projects with Rikinto [ph], I'm not sure if you're referring there to our previous joint venture that we had in which they were able to drill off a bunch of resources peripheral to their operations at IoT and which we have royalty done.

That's still ongoing but it hasn't been overly active. Rio has; they were successful in drilling off significant resources there but they are longer term -- therefore, the longer term future of that operation; and so we do own royalties on all of the periphery or most of the periphery resources at IoT but there is a cycle or two out for sure.

Maybe you're referring though to the more recent acquisition than the fact that we've became a significant shareholder of Labrador Iron Ore Royalty Company which is in turn the royalty holder and equity holder together with Rikinto [ph] in those operations and there we're just a situation. As we've seen many times in our past where a very strong royalty was sitting within a corporation and the total value of the corporation was trading for less than we believe the underlying royalty value to be.

We've done that a bunch of times in our history, notably our investments in international royalty corporation, previously with Labrador Iron Ore; I guess it would have been an income trust in those days, Virginia, this is a big part of our history, if we -- in the past year if we had tried to buy a direct royalty from anybody, expectations ramped up as the market turned. The clients have returned or could have expected -- would have been relatively low, the actual market directly, company to company, or vendor to purchaser for royalty really got hot and very little value to be found.

So as we've done in the past, when that happens we haven't been big buyers of direct royalty interest but we do monitor the value of these things and if there is a way to attract or to get money into them, that is less than through the companies that hold them, that is less than the underlying value well then we're quite happy to do that and it's been one of our most successful strategies as a company. We've probably got more than 50% return on investment record in that kind of buying and betting in the past and so far the Labrador investments that we started last year, buying $13, $14 range -- we're going to pull off to $250 in dividends from that this year and royalty growth.

So I could promise you, you can't get double-digit sometimes with a two in front of them returns by buying direct royalties today and the Labrador trough is definitely here to stay and that's one of the best mines in world, it's whether to hold downturn and we're quite happy to be owners right now. That's a very long answer to a quick question.

Thank you.

Good morning and congratulations. Two quick questions if I may.

Did you mention how many shares [indiscernible] in the last quarter even if I missed it? And then the second question is, when you're looking at acquiring royalties, to what extent does the balance of commodities who already have play into it or do you look at each asset on some merits?

I'll answer the second part first while somebody scrambles to get to the exact numbers here that we acquired last quarter. We do keep a really close volume on diversity balance and how we do that is, we just kind of squint our eyes and we're looking at the same kinds of charts that Riotinto [ph] or VHP Tech might publish; and we want to try to keep that mix.

We also keep a good eye on the global traded value of the various commodities, because -- I mean ultimately what we're trying to offer an investor is an alternative way to play the diversified mining space at the royalty level. It's impossible to completely match that and things will shift with prices and volumes.

It certainly was the focus area in the past 18 months, once we bought the share transactions, we were quite overweight thermal coal, that's what we had to do to get -- that's the potash role that we were after there and we were quite late on the base metal side. So if it came down to deploying limited resources, year and a half ago between coal or copper, it was a no brainer, we went after the copper.

But that's starting to come into much better focus right now, we're -- you wouldn't see a gigantic difference between our commodity mix and that of the big diversified mining houses right now and overall it's not a bad proxy for the relative weights traded value of these various commodities in the world. We're definitely the closest thing that exist to a balanced diversified mining royalty house out here right now.

And on the first question; we bought back 154,000 shares. Our challenge there is, we're limited by the percentage of the overall liquidity in the business and in terms of how much we can buy.

It remains a frustration for us at how -- we're not the most liquid stock in the world, we recognized that. We've got some really low on the shareholders that don't seem to -- want to part that much but we're limited, mathematically as a function of that; so we get as much as we can but it is rather -- and it's never as much as we'd like.

Okay, thank you.

Okay, thank you Candice and thank you everybody for asking questions. We have kind of an unusual circumstance where all our analysts are in the air, in transit somewhere else but that should clear up next quarter because it's the December.

So thanks again and we'll talk to you next quarter.

Thanks, everyone.