Versamet Royalties

It’s a pleasure to be here with all of you. Thank you to the Denver Gold Group for inviting us this year. It’s always a wonderful opportunity to be talking about the royalty business here at Minerals Forum Americas. I think a lot of our distinguished peers and this conference in general allows me to skip over a couple of the key themes that you’ve heard a lot about this morning: the merits of precious metals in your portfolios, the quality of royalties and streams as a general business model. And I will be exceedingly brief as I will leave you with three key takeaways about Versamet and then turn it over to Eric for some hybrid questions in this presentation.

So, going ahead, three key takeaways about Versamet really is the scale, the growth, and the opportunity. When I speak about scale at Versamet, we’ve been a public company for about a year and a half. The company’s existed for a little bit over three years, but in that time, we have grown to a billion-dollar market cap. We will produce just about 20,000 GEOs this year. That generated about $50 million of revenue in the first half and just about $40 million of cash flow from a portfolio of about ten producing assets here in H1. So the scale of the business is something that you need to understand.

The portfolio itself is exceptionally high quality. It’s about 90% precious metals. Half of our NAV comes from Canada and the United States. Well-diversified geographic optionality. You’ve heard a lot about that this morning. But the scale of the business is something that you really need to understand for Versamet. 85%, like I said, is from GEOs.

The scale also extends to our marquee shareholders. You’re investing not only in a royalty and streaming company, but alongside some of the industry’s largest and most sophisticated investors. B2Gold is our largest investor. We also have Tether, like many other royalty companies, the Lundin family, and Zijin Mining is also an investor. Importantly, I would also add that insiders own about 10% of the company. So when we make decisions about capital allocation, about where we’re taking the business, we think like shareholders because we are shareholders.

The next part I would like to talk about is the growth. The company started out relatively modest. In 2022 revenues were about $1 million. This year we’re going to see year on year on year growth, some really significant percentages. Like I said, about 20,000 GEOs this year, but that is growing significantly by 2028. Analyst numbers have that number doubling again to about 40,000 GEOs.

The most important asset in that portfolio growth comes from Eskay Creek, an asset that we acquired earlier this year, 3.52% uncapped gold stream. This is really everything you look for in a streaming and royalty asset. It’s large, it’s uncapped, it’s in a fantastic geography, a lot of geological and exploration upside. There’s a new study coming out later this year. It’s in the lowest quartile of the cost curve, a really significant operator, and we have a really meaningful exposure to this asset. This is going to do about 10,000 GEOs per year for us when it comes online mid-2027. The project is already 70% built, and when it comes online next year, takes our production profile up another tier. Again, like all royalties and streams, this doesn’t cost us anything. It’s just a matter of time and waiting for assets like this to come to fruition.

To speak about Eskay Creek, I think is probably the most important single catalyst within the Versamet story, but by no means does the growth end there. In our producing assets of about ten next year, each of them are at the beginning of a really significant mine life, having hundreds of millions of dollars of expansion, exploration capital being spent. Rosh Pinah, this is a mine that’s been operating in Namibia. We have a silver stream. It’s been going for more than 50 years. The owner, Appian Capital, is undertaking a really significant mill expansion, new adit, new decline, to really extend this mine life into the decades ahead and double mill throughput. The exposure we have to this asset is obviously free upside and free growth in the future.

Kolba, a mine that we helped Endeavor Silver Finance, their acquisition of earlier last year, they’ve already undertaken a 40% expansion. I think that that success has come really quite quickly, and I’ll expect to hear them talking about further plans to go beyond that. Those are expansions. We have new mines that are coming online inherent in the portfolio. QQQU, next to TZ down in Brazil. Cabral Gold have done an exceptional job bringing on an oxide portfolio of production there. That first check has already hit the bank account. Touaga, West African Resources, a new project in Burkina Faso that will be producing either later this year or very early next.

And then beyond that, there are projects in construction. Two most notable ones, El Pilar. This is a copper oxide SXEW in northern Mexico, owned by Southern Copper. That’s gonna be a 20-year mine life getting started here, and the Santa Rita underground. So a lot of growth that takes the portfolio from a really healthy cash flow-generating, capable company standpoint and taking it into the future, nearly doubling production again by 2028.

And the last key point I mentioned was the opportunity inherent in Versamet. I’m gonna point to the chart on the right-hand side. This is analyst consensus 2027 price to cash flow. You can see Versamet there trading at anywhere from half to a third of the industry average multiples. Really what this comes down to is an expectation of Eskay Creek’s timing. But I think the ingredients are there in place already for Versamet to close this gap quite significantly once Eskay Creek comes online, and these numbers would only include half of the year in 2027.

But all of the things that we’ve been doing as a young public company in terms of our capital markets profile, increasing liquidity, increasing our institutional shareholding. We just listed on the Nasdaq earlier this year, added to some indices, small cap, GDXJ. I think all of those things are now perpetuating a continued understanding that Versamet is going to close that gap, which as shareholders we think is exceedingly important for the future of the company and allows us to continue to grow the business. But that’s the opportunity that is in front of shareholders right now and what we’re focused on.

So when I think about the three key themes before I turn it over to Eric, is the quality, the importance of the portfolio, that scale. It’s a really strong cash flow generating business. The growth, exceptional. We’ve done doubling of production every other year. It’s gonna continue going into the future. We’ve said nothing about the long-term optionality of the portfolio. There’s 29 assets in there. I’ve spoken about a handful. Like all royalties, that is a criminally underpriced proposition. And the opportunity really comes from not only earnings growth, but multiple expansion as the business is better understood, more investors understand Versamet. It’s only been a company for three years, but I think it’s come a long way. And with that, I’ll turn it over to Eric.

Excellent. Thank you very much. Really appreciate the update. Maybe before I jump in, any questions from the audience? So sure. Maybe just a couple of questions from my side. Diving in on Eskay Creek, first and foremost, clearly a very transformative deal. Any additional comments you can add in terms of how the deal came about or what it was about that particular deal attracted you? Is this a typical kinda deal the shareholders might expect? And, yeah, any background there would be helpful.

Sure. I would say it’s definitely typical in terms of what the asset represents. I would say Versamet set out at its outset with a strategy to build a cash flowing portfolio. There’s numbers of ways to skin a cat, earn returns in this business. We’ve heard a number of those different strategies this morning. But gaining access to a gold asset in Canada with a lot of technical upsides, an uncapped long life, no buy downs, that is the style of asset that we always hope that we would be able to acquire when we set out to build the business.

So we are constantly looking for new opportunities. We have relationships with people in the industry. That was really where the opportunity to acquire this stream came from, from Orion. A history of being active in the industry. A lot of our team members have done some work with Orion in the past. And really, I would say it comes down to having the balance sheet built on cash flow in order to do an acquisition like this. Now granted, at $360 million, that is an awfully large bite. I wouldn’t suggest that’s a normal transaction size for us. I would say more typically we’re in the $100 million to $250 million range where we can still have a really meaningful impact on the portfolio, a little bit more bite-sized, and doesn’t draw the attention of some of the really larger peers in the industry.

Okay. Fantastic. So maybe just moving beyond Eskay then, any other assets or development projects in the portfolio you think the investors maybe don’t fully appreciate or where you see a lot of upside?

Yeah. I would say two I would talk about here in general, Rosh Pinah and Santa Rita. These are two assets that are owned by a private equity firm, so they don’t get a lot of press releases. They don’t see a lot of news flow. So in the case of Rosh Pinah, like I mentioned, this is a doubling of mill throughput. It’s been operating for 55 years. We have a silver stream there. Namibia is a fantastic operating jurisdiction. We expect that that mine life to not only increase in terms of the amount of silver produced, but extend for quite some period of time well in excess of what our forecasted model had when we did the acquisition.

Similarly, Santa Rita, this is a nickel mine in Brazil. It’s an open pit currently. It’s about four or five years left, but the real juice that is gonna come from this is a large sub-level cave that’s going to extend the mine life by another 30 years. So again, asymmetric upsides that accrue to the royalty holder. We have a long list of big mineral inventory projects that are seeing a lot of catalysts. Hackett River in Canada’s North, we’re seeing a lot of infrastructure spend being promised up there. That’s an asset that will take a long, long time for it to come to fruition. But just to give people a flavor, largest silver VMS undeveloped in the world. It’s about $25 million a year for revenue to Versamet when that comes online. So free upside, the entire company is underpinned by these producing assets, the nine times cash flow. You don’t need to pay for the upside. You just get it over time.

Great. Fantastic. Thank you. And when you look out in the future here in terms of commodity mix, any views there or maybe jurisdictions too in terms of where maybe you would play or wouldn’t wanna play?

Yeah. I would say the company has always had a goal and a vision to be a precious metals streaming and royalty company. Like I said, it’s about 90% gold and silver in next year. I would say we will opportunistically look at things that we understand where we have a lot of institutional knowledge. Nickel and copper are examples of that. Nothing weird and wacky. We wanna stay LME type metals, well understood, non-opaque markets, non-opaque pricing. We wanna make sure that when we allocate capital on our shareholders’ behalfs, that we earn excess returns, and we need to make sure that we stay focused on what we know best.

In terms of jurisdiction, again, the beauty of the royalty and streaming model is the diversification. Ten producing assets, that is a level of diversification that allows us to take on risks from a jurisdictional perspective that a single mine junior cannot. That said, we will look mostly in the Americas. Again, that’s where we know. We’ve seen a number of opportunities and made some capital investment decisions in Africa, Namibia, Burkina Faso. They are right size, the appropriate risk-reward ratio when taken as a whole in the portfolio. You won’t see us going into some weird and wacky geographies, places where people have had negative experiences in the past. But Americas, I would say, Eric, is probably where you’re gonna see most of our time and most of our capital go to.

Great. Thank you very much. I would say another topic comes up with investors quite a bit is M&A, and mergers potentially among the royalty companies. How do you view that? Is that part of your future here, or any thoughts on that?

Yeah. A couple of points. I would say, again, the business works best at scale. When you can acquire high quality, large assets, you earn long-lasting, multi-decade returns. That is why the largest royalty companies in the space trade at the best multiples. Why are they most enduring and best owned assets and companies in the space? Does M&A then play a role for this mid-tier group? I think it absolutely does. I think the caveat being that you need to build a better business than just smushing companies together at random. I would suggest that portfolios centered around cash flow increase the capability of those underlying companies in order to grow and deliver returns for shareholders. Bigger assets are generally better assets. They’re assets that you want to be exposed to.

And so we think as shareholders. I think half of our employees are ex-Mavericks. They had their money where their mouth was. They were acquired by Triple Flag a handful of years ago. And so while it’s not part of the everyday strategy, it’s by no means something that we would shy away from should the right opportunity present to deliver excess returns for our shareholders, which of course we are ourselves. We’re not doing this for the biweekly paycheck. We’re doing this for share price appreciation.

Excellent. Thank you. Any other questions from the audience? Another one for me here. In terms of capital returns, I know it’s always tricky when you’re in a growth mode, obviously lots of use of proceeds. Do you have target hurdles, or at what point do you think you’d look to capital returns and dividends and buybacks?

Yeah, that’s a really great question. Again, why we focused on generating cash flow, I think it allows us to pursue growth, which we’ve done, I’d say, an exceptional job of, but it will also allow us to return capital to shareholders at an appropriate time. So it allows us to strike that balance. I would say we work on about a three-year payback period on our debt. So the Eskay Creek transaction took us to where I would say is our comfortable limit on debt. As that asset starts to generate significant cash flow in mid-2027, I think the dividend capital distribution becomes a live topic, something that we definitely want to be aware of. It’s something that a lot of our investors are keen on, and again, as shareholders ourselves, something that we’re fundamentally aware of. It’s a privilege, I would say, to have a portfolio capable of generating the amount of cash that it is, where we can not just do growth or do capital returns. We can honestly do both.

Excellent. Thank you very much. I think we’re almost out of time here. Any closing remarks you’d like to leave people with in terms of what we can expect to see in catalysts for the year ahead?

Yeah. I would say obviously the largest catalyst is the construction and production of Eskay Creek. I think Versamet is in a little bit of a Lassonde curve dip from a share price perspective. It’s a really big asset. It’s gonna represent significant step change growth for the company. Will help us reload the gun for further growth and appreciate everyone’s time with Versamet today.

[audience applauding]