How has Triple Flag navigated 2022, and what is the state of the business today?

In 2021, if we were having this conversation, I do not think any of us could have forecast 2022 to be the year it has been. The evolution of the pandemic, Russia-Ukraine war and China zero-Covid policy have led to geopolitical instability, ongoing supply-chain disruptions and hyperinflation, which have all been compounding factors in a complicated environment. Having said that, I think it has shone a light on the role gold plays as a store of value in uncertain times, the resiliency of our business model and, specifically, Triple Flag's business. We had numerous corporate milestones as a business despite only having listed in Toronto in May of 2021. Amongst those accomplishments were the announcement of our largest transaction in our history, namely the acquisition of Maverix Metals; our sixth consecutive annual sales record; and listing on the NYSE, which was an enjoyable moment to celebrate that was more than six years in the making.

As part of being a newly-listed company, we had to undertake our inaugural ESG rating assessment. Fortunately, many of the desired outcomes are things the mining sector has been doing for years and have been core to our management philosophy at Triple Flag. We can call it sustainability or corporate social investment, but it is just good and sensible business to partner with people who take care of the environment and do the right things, while helping our mining partners to enhance their privilege to operate by complementing their social investment programs where possible. We have also continued to maintain the carbon neutrality of our portfolio and investing activities, including scope 1, 2 and 3 emissions. We were pleased that our efforts were captured in our inaugural Sustainalytics rating, where we came fourth out of the 120 precious metals companies globally in their coverage universe, and in the top 1% of all the companies in any sector around the world. We also just got certified as one of Canada's great places to work, which is an important feature of anyone running a business whose success is a function of high-quality talent, specifically people’s energy, capability and experience. Those elements are foundational.

From a business point of view, we delivered our sixth consecutive year of record sales. Triple Flag has delivered a 21% compound annual growth rate in sales of gold equivalent ounces since 2017, our first year of sales since starting the business in 2016. We closed 2022 with approximately US$151.9 million in revenue, have no debt, over $700 million in available liquidity for new deals, and we are seeing the busiest deal pipeline since our inception. Importantly, in this inflationary environment, our 90% cash margins and the defensive nature of this business model are really starting to come to the fore. Triple Flag was also pleased to announce a deal more than a year in the making to acquire Maverix. It is a sensible opportunity to create greater scale, diversification, critical mass, and unlock meaningful annual synergies, resulting in an accretive transaction that continues our growth trend. It takes us to 228 assets in our portfolio, 93% of which will be gold and silver focused by value. We have 29 producing assets, and 82% are located in favourable jurisdictions like Canada, Australia, the USA and Latin America. We also pay the highest dividend yield in the sector.

What role does a company like Triple Flag play in financing the development of critical metals?

An important feature for our chosen way to compete is our disciplined focus on the precious metals streaming and royalty model and commodity exposure, which recognizes that our investors can diversify themselves into battery metals or other commodities, or gain exposure to mining equities and other parts of the capital stack if they choose. I do not want Triple Flag to try and be all things to all people. However, I do believe that our capital can contribute meaningfully towards enabling the energy transition through investing in polymetallic orebodies which have precious metals byproducts that are more valuable to our investors than to the miners targeting battery or base metals exposure for their investors. A very high proportion of the ore bodies are polymetallic, and there often exists a precious metals byproduct. If Triple Flag is not streaming or doing a royalty on the primary product, and instead we are taking a byproduct that the mining company and its shareholders care less about, then we can provide them with a more competitive cost of funding, unlock value not otherwise realized, and help share the risk on new mine developments or acquisitions, for example. That can be highly symbiotic and unlock additional value for all stakeholders. It allows Triple Flag’s investors to get long-dated exposure to these ore bodies’, and it adds to our precious metals exposure in the portfolio without compromising the product that the miner and their customers primarily seek. At the same time, it means that I do not have to go out and build up a large copper or nickel portfolio and dilute the precious metals focus of our portfolio, but can still support the energy transition. We can share the arbitrage. 70% of our ounces currently come via byproducts and that is by design.

Do you believe M&A will play a key role in bringing back generalist investors?

The sector needs more consolidation, more relevance and more scale. If you are going to appeal to generalist audiences beyond the index trackers and specialized investors, you need to continue to do the right things with capital allocation and portfolio management. M&A is surely part of that, otherwise the sector risks being simply too niche.

What makes Triple Flag’s form of financing suitable given the cyclicality of the mining business? Is the opportunity set significantly greater than it has been in recent years?

Triple Flag was created with the idea that conventional forms of funding and more generalist sources of equity and debt cannot be taken for granted and are often unreliable for miners in their times of greatest need. There is an important role for sophisticated, competitive, customizable, long-term capital to enable the funding needs of the mining sector through the commodity cycle. Conventional financing often tends to be inconsistent or unreliable at various points of the cycle, and mines need to be built on their own unique schedules. This requires longer dated, more patient, long-term knowledgeable capital. We found a consistent opportunity set to deploy despite the cyclicality of the business. Today, large, diversified mining companies have got strong balance sheets, ample liquidity, and have demonstrated greater discipline in allocating capital and the funding of their strategic priorities than some prior cycles. They have the ability for self-help. Single asset businesses, developers, explorers, juniors and intermediates tend to be in far less advantageous positions. There are some who see an opportunity to act counter-cyclically or strategically, and look to acquire assets or build new mines, but lack the firepower to readily execute on their ambitions.

There are also heightened risks present at this time. Several majors have highlighted the challenges of lower volume, supply chain disruptions, higher costs, and materially higher capital outlooks in a way that has weakened sentiment. If you look at intermediates and juniors, with these inflationary forces, higher borrowing costs and less liquidity, they are facing an even more challenging situation. If you are going to partner with these companies and invest in either pre-production or non-producing situations, particularly if it is a larger cheque, you must do your homework diligently, because you want to make sure you are investing in teams and assets that have a reasonable likelihood of success. The pressure relief valve for big companies when they get it wrong, is their ability to tap into their available liquidity sources and ongoing cash generation. For those less fortunate, smaller companies, whereas beforehand they would go and do an equity raise, that is a lot harder today, and if they can raise equity or debt it is a far more expensive alternative in this market. Triple Flag is seeing a plethora of opportunities from companies who need capital. That includes producers who are engaging with us at a higher rate than we have seen in a couple of years, but the pre-production and development stage is where we tend to consistently see the most opportunities. Triple Flag has been and will continue to be disciplined in how we go about deploying our capital.

Are you a proponent of the bootstrapper approach some companies are taking today?

Companies have fallen in the trap time and time again of chasing returns in their plans where they throw a lot of capital at it and go for the big bang. The problem then is if you get it wrong, it can be catastrophic, particularly if you have got a lot of debt financing, and a big burden associated with that. If you can stage development, maybe you have a slightly lower ex-ante return on a spreadsheet, but the risk-reward trade off and future valuable optionality of that approach can often work quite effectively.

When operators are seeing margin compression with inflation, that is a challenge because free cash flow matters. With our model, the idea of prioritizing cash generating assets in building our portfolio and growing that while also acquiring longer-dated optionality creates a flywheel of cash generation to reinvest in future growth, pay dividends, and prevent us from diluting our shareholders at unfortunate times in the cycle. At a moment when the sector needs capital and there are opportunities abound, you want to have capital to deploy. If you can have both cash generation and access to funding, it is foundational to creating value over time for the sector and our investors.