Carbon Streaming Corporation

Thanks very much, Terry, and thanks, everyone, for joining our first quarterly conference call here at Carbon Streaming. With me is Geoff Smith, the President and COO; Conor Kearns, who's the CFO.

We've got Mike Psihogios on the line with us, who's our Chief Investment Officer; Anne Walters, who's our General Counsel; and Amy's Chambers is with us as well, who's head of our sustainability and marketing practice. So thanks, everyone, for joining.

I will hand the call over to Conor after myself just to talk about the financial results, and Geoff Smith will provide an asset update and talk a bit about the pipeline.

So -- but before I get there, I just wanted to talk about a few of the highlights over the last 6 months and particularly the last quarter as it's been quite a busy and active period for the company.

So first off, at the beginning of the quarter, we closed off our $105 million capital raise, which was 4x oversubscribed in mid-July and very excited to get that closed. The balance of -- or the bulk of that capital is still sitting on our balance sheet for future transactions.

So it leaves us in a -- just in a great place over the next 6 months. Later that month, we completed our public listing with the NEO Exchange and shortly thereafter with the Frankfurt Exchange.

And then in early August, we announced our investment -- our first Carbon Stream investment into Rimba Raya and a long-term partnership with InfiniteEARTH.

In my opinion, every great royalty and streaming company needs a cornerstone asset and we strongly believe that Rimba Raya is that asset for Carbon Streaming. And again, Geoff will take you a bit through that, but that's an asset that we -- frankly, a transaction we've been working on for the better part of the year and very excited to get that announced and closed.

In September, we announced our investment and partnership with ERA in Brazil. This is just another outstanding project developer and our first of, what I expect, to be many investments in South America.

Towards the end of the quarter, we announced our share consolidation in pursuit of our U.S. listing strategy, which we believe will just open us up -- open up Carbon Streaming to a much broader pool of capital.

The exact time line for that U.S. listing, of course, are unknown.

But I'm targeting and hoping that we can get that done sometime in likely the second quarter next year. And in the meantime, we are pursuing an uplift on the OTC markets, which, again, I hope to have done in the next couple of weeks, and we'll certainly be updating the market as soon as that OTC uplift is completed.

And then today, we announced the closing of our MarVivo transaction. Geoff will touch on MarVivo, but excited to get that one across the finish line.

And before I turn it over to Geoff, maybe I'll just finish off on what I'm most excited about, and that really is the sort of growing and augmenting of the management and investment team here at Carbon Streaming.

A year ago, this company had, I think, 2 full-time employees, what we thought was a great idea that we've been working on for quite some time. But today, we've really built up the team.

We now have 6 people working on the investment team full time. We brought -- really augmented the entire team with the people that I mentioned on the call with us today and just brought Geoff Smith on to the team, and Geoff's a guy I've known for over a decade and, frankly, been trying to hire for the last 4 or 5 years.

So very, very excited for Geoff to join the team.

So with that, why don't I hand the call over to Conor, and he'll take us through some of the quarterly financial results for the benefit of the listeners. Thanks again.

Thank you, Justin, and thank you to all participants tuning in to today's call. I'm happy to run through financial results for Carbon Streaming from our first quarter ended September 30, 2021.

The company's first quarter was highlighted by several key events. On July 19, the company closed a USD 105 million equity raise.

Somewhat concurrent with this equity raise, the company listed and commenced trading of its common shares on the NEO Exchange in Canada as well as the Frankfurt Stock Exchange in Germany. Following the $105 million equity raise and the deployment of some of its capital into streaming and strategic assets, namely, Rimba Raya and InfiniteEARTH, the company had $108.6 million of cash on its balance sheet at September 30, with no corporate debt.

During this quarter and as a result of the Rimba Raya transaction that the company expects to continue to raise capital in U.S. dollars and as well as the fact that our carbon credit stream agreements are primarily based in U.S.

dollars, the company changed its functional and presentation currency to U.S. dollars from Canadian dollars.

As a result of this change in currency and quite common with Canadian public companies, the change triggered a derivative treatment of the company's warrants that are denominated in Canadian dollars. This treatment sets up the warrant liability on our balance sheet with subsequent revaluations at each reporting period.

.

Lastly, although the effective date of the share consolidation was October 22, which is subsequent to the quarter end, the consolidation was handled retroactively to reflect the share consolidation within our financial statements. With that, I'd like to pass it to Geoff Smith for an asset investment update.

Geoff?

All right. Thank you all for joining, and thanks, Conor.

As Justin mentioned, we're very excited to have the Rimba Raya project within the portfolio, and I'll first start with that update.

It is our largest investment. This is a deforestation project protecting approximately 64,000 hectares of tropical lowland peat swamps, which are an endangered ecosystem.

And also this land is home to the local Bornean Orangutan in Indonesia. We believe it's a world-class project for multiple reasons.

In particular, this was the first REDD+ project validated under the standard. It's also the first REDD+ Plus project meeting all United Nation (sic) [ United ] Sustainable Development Goals.

And what that means is this project has an immense impact on various aspects towards the local community and ecosystems.

Further, it was the first REDD+ project validated under the SD VISta standard. To date, it remains one of the largest projects in the world and has the benefit of a 10-year operating history.

Carbon Streaming expects to receive approximately 3 million credits a year to our account under our stream under this investment. Importantly, though, in the first half of 2022, we expect to receive approximately 7 million credits.

And this is a function of there being a skipped validation period due to the COVID pandemic. We're excited to take possession of these credits and frankly, inbound demand that we received from corporate buyers has been very encouraging, exciting and one that we expect to be able to translate into strong cash flow for our shareholders.

Next up is the MarVivo investment. As Justin mentioned, that closed and we announced such closing this morning.

This is a development stage Blue Carbon Project. Blue Carbon, of note, it protects marine ecosystems and coastal habitats, in this situation, in Magdalena Bay, as part of Baja, California, Mexico.

The Blue Carbon projects trade at a significant premium to the underlying REDD+ Standard, approximately 50% premium currently versus the terrestrial land-based credits.

Our stream, which is expected to start generating credits in the first half of 2023, is one where the project expects 1 million credits a year, of which the greater of 20% or 200,000 credits would be to our account under the stream.

Our third project, Cerrado Biome, that transaction was closed in the quarter. This is an Avoided Planned Grassland Conversion grouped REDD project located in Brazil.

The Cerrado Biome is considered the bread basket of Brazil, and the Cerrado is the second largest biome in Brazil and considered one of the most biodiverse savannah regions in the world. Verification for this project is currently underway with Verra international verification body.

We expect that verification process to be completed in early 2022, with sales to begin thereafter. In terms of Quantum, on a run rate basis, we're expecting 100,000 credits approximately from this project, ramping up with time.

But importantly, for this first verification cycle, that will validate multiple years. And so we're expecting approximately 400,000 credits.

As Justin mentioned, we're very excited about the pipeline ahead of us and have ambitious growth plans to deploy capital and continue to grow. As it currently sits today, our pipeline is approximately $200 million of near-term investment opportunities.

So certainly excited about that. That also sits in front of a larger pipeline of $700 million of transactions and one we're looking forward to realizing in the near term.

We hope that this will provide investors exposure to a large, broad and diversified portfolio of carbon credits. At this point, operator, we'd just like to pause here and invite questions from the participants.

Okay.Yes, I have a question. Regarding the Article 6 proceeding at the latest conference, I'm wondering how that will affect the private sector or corporate market for like if Microsoft is buying credits in Brazil in terms of the double counting issue, how does the compromise on Article 6 affect companies ?

Yes. Thanks, [ Brian ].

It's a great question. What we've actually seen in the market is companies that have been, what I'd say, a little bit hesitant to buy credits in the offset market, not knowing what the outcome of Article 6 would be.

So now that you've had what we hope will be sort of finalized terms on Article 6, we actually believe that, that sort of layers in a whole new level of confidence in the market and especially for the international transferability of carbon offsets and carbon credits and the fact that because they are using corresponding adjustments and limiting the double counting that, again, buyers can have a bit more confidence in the credibility of those credits.

So overall, we expect it to be quite a positive development for the voluntary markets as some of this confidence should now come into the market.

I wonder if you have any forecast at all for cash flow for 2022.

Yes. [ Matt ], so what I would say is and what we've publicly announced is the fact that we are expecting about 7 million credits in the first half of next year.

Carbon prices are significantly higher than we forecasted even 6 months ago, which we're obviously very encouraged about. We believe that with today's pricing, we can make a couple of dollars in revenue and cash flow off of -- sorry, in cash flow off of those credits.

But we also anticipate on investing the vast majority of our cash on our balance sheet here over the next 6 months, which will have a material impact on 2022's cash flow. So -- but for now, we're pretty encouraged by what we're seeing in the carbon price and as I said, expecting those 7 million credits early next year.

Justin, to follow up on the first investors question. I'd like your high-level view on the UN conference, the COP 26.

Was that best possible outcome, middle, not what you had hoped? Would you could give us a little more color on that?

And also, if you could give us an idea of what our high-quality carbon credits trading for right now.

Yes, no problem. Thanks for the question.

So on the balance, for COP 26, I would say we'd be fairly encouraged. We saw some nice new commitments come out of many parties for ending deforestation, as an example, by the end of the decade, which would absolutely be a tremendous outcome for the climate, if that's achievable.

In terms of the Article 6 negotiations. Often, we've had years and years of disappointment.

But again, very encouraged that we seem to finally have agreement from 6 years ago on Article 6, which I think is -- we take as a very encouraging sign.

So I think people leave COP 26 always thinking more could be done. But I think on the balance of what we heard out of that 2-week conference, we're pretty encouraged by.

But frankly, the whole -- the continued wholesale commitment that we see from governments, corporations, individuals worldwide to fight climate change, which I think is going to be a tremendous outcome for Carbon Streaming and the industry as a whole.

In terms of carbon credits, in terms of high-quality carbon credits. We really have seen prices escalate quite rapidly this year.

And in terms of the nature-based credits, those are trading around. If you look at the CBL expansive platform or carboncredits.com or Opus, which we use these various reports along with our own assessments, of course, the pricing is $12 to $13 a credit for the high-end REDD+ credits that we have in our portfolio.

And again, that's upwards of almost 100% increase from where we were even 6 months ago. We -- I'm not sure we've had true price discovery in this market yet, but suspect we can get there over the course of next year.

I wanted to ask around the 7 million carbon credits and what that breakdown looks like from a cash flow perspective. 7 million times 10, if it was a $10 carbon credit, would be $70 million.

And how does that break down when $70 million potentially is coming or $70 million plus is potentially coming into the business? How much is that Carbon Streaming?

And how much does that -- the rest go elsewhere?

Yes. Yes.

Great question, [ Jarrod ]. So you're right.

So 7 million credit, $10 a credit, is $70 million in revenue. From that revenue, we share a vast majority of our revenue with our project development partners.

And that revenue share is generally somewhere between 75% and 90% of the revenue. What we expect to achieve on the current allocation of $7 million over the course of next year is somewhere in the neighborhood of 20% of that revenue would flow through to Carbon Streaming as a result in cash flow.

This is [ Adam ]. So one question.

If you could update us on potential status of listing on a U.S.-based exchange. And if you could comment on the competitive landscape, other firms that are investing in similar areas.

Yes. Thanks, Adam.

So in terms of the U.S. listing strategy, as I commented on the call, we are hoping to uplift on to the OTCQB market here in the next couple of weeks.

And I look at that as sort of a bridge to the larger U.S. listing, which is planned for early next year.

I expect -- and my General Counsel is going to kick me for saying this. But I'm hoping that's around April next year, [ Adam ], assuming all goes well.

It's sort of impossible to commit to these time lines because there's a number of steps that are out of our control. But I'm hoping it is sometime during the second quarter and hopefully early second quarter next year for that U.S.

listing.

In terms of the competitive landscape. As I guess imitation is the best form of flattery, as they say, we have seen a couple of competitive businesses pop up.

There, what I'd sort of remind investors of is there's 4,700 projects in existence today amongst the 4 largest voluntary carbon registries and hundreds, if not thousands more that need to be developed over the next decade if we want to get anywhere close to our Paris Agreement commitments.

So we haven't seen any competitors in -- any sort of direct competitors in the opportunities that we have in our pipeline. When we look at sort of former competitors and what other options project developers had available to them before Carbon Streaming came along, I think, frankly, we just have an offering here at Carbon Streaming that has perfect alignment with our project developer partners.

It's a long-term partnership where we help to maximize the value of their carbon credits and where everybody wins if we're all doing a good job.

So I think we have a very -- and the reason we started the company is because we have a very unique offering here at Carbon Streaming and providing capital to a sector that had been underserved with capital for more than a decade. And again, I think there'll be lots of opportunity for us to continue to grow our investment portfolio.

And we're very encouraged by what we see in our investment pipeline today.

Yes. Thanks, Terry.

And again, thank you, everyone, for joining our first quarterly conference call. We will make a habit of doing this every quarter and really appreciate your participation.

And as always, please feel free to reach out to us on our info line at carbonstreaming.com. It's probably the easiest way to get a hold of us.

But we're available for any follow-up questions, and thanks again for participating today.