Altius Minerals Corporation (ALS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Altius Minerals Investor Day conference call. [Operator Instructions] I would now like to hand the conference over to Brian Dalton, CEO. Please go ahead, sir.

Thank you, operator, and thank you, everybody, for joining us here today. This is our first ever Investor Day, and it might be a little different than what you're used to from other companies. We're not going to drill into all of the things that you know. We're going to try to focus more on -- more of the hidden elements of Altius, if you will, the various forms of optionality that we believe exist within the company, and see if we can help resolve a lot of the more common questions that we get around, what do you see that's different about your assets than maybe shows up in most analysts' reports or that you get from your quarterly reports. So we're going to focus on that kind of an approach. So first slide here is our forward-looking statement. Please go through this carefully. Obviously, just because we're talking about upsides and optionality, a lot of what we'll talk about today deals with forward-looking statements. And in fact, as a long-term countercyclical investor, pretty much everything we do has to be forward-looking. So anyway, I do want to draw your attention to this for a careful read. So we're going to start out today going through just some views that we have on the current cycle and to talk about how we feel we are positioned for where the current cycle is. Again, as a countercyclical investor, it's important for us to feel like we are aware of where things are at any point in time and where they're probably heading. It's a viewpoint, but it's guided us well so far. So how we're going to frame this, we're going to come in from the big picture and quickly drill down, and we're going to start out by talking about copper, or Dr. Copper, as many people like to refer to it as. So the charts that are up on this slide, the one on the left basically shows overall population growth as the bars and then the wiggly lines superimposed on that is the amount of copper or the amount of copper intensity per person that's happened over the period that's shown from 1950. And basically, what you can see in that period is that the world population has tripled, and every person uses 3x as much copper as they did back then. The end result there is that we now use 9x more copper every year than we did back in 1950, which incidentally is the year that my parents were born in. The combined impact is about a 3% or a little better than a 3% compound annual growth rate. Now to get a little forward-looking. If that forward -- if that growth rate continues, by 2050 the world will use 36 more million tonnes than it uses presently. So it's at around 24 million metric tonnes a year right now. It will grow to 60 million tonnes by 2050. This is an enormous challenge for the industry, and this doesn't take into account the potential for increasing per capita use on electrification trends and everything that's topical right now in terms of why copper demand could set the increase. This is the base case. It's a big job for our industry. So moving on now. This is another long-term chart of copper, and it's shown in both copper prices now and is shown both in current dollars and constant dollars. And what you see in the red line, which is the constant 2012 dollars, is a long-term structural decline in the price of copper. So that continued until about 2000. I would have been getting started in the industry at the early '90s and mid-'90s, and the narrative of the day at that point was that copper was going to fall in real terms, basically forever. I don't know if people actually went as far as to think about what happened when it reached 0. But that was the belief of the day, that that's where things were heading. The reason for that is, that period of time was characterized by some real big technological breakthroughs that opened up the exploitation of some big copper porphyry deposits, predominantly in South America, a little bit in Asia, and these fundamentally changed the marginal cost of winning copper. Something happened, though, at around the turn of this century, and there were 2 things really. We started to run out of the low-hanging fruit, so the easy parts of those big deposits were gone. Things were -- mines were getting deeper, and grades were really starting to decline. As well, at that point in time, we -- the world experienced a bit of an unexpected demand surge. That was largely driven by events in China and just sort of urbanization trends within China. So you had a real issue that emerged. And that broke the back of that long-term structural downtrend and caused what became known as the super cycle. And what we can see now is that it didn't just break the -- on a cyclical basis, it's changed the structural makeup of the copper business, and now we're in a structural uptrend. So within this, though, you can see the alternating bands of [ white ] and blue. These are cycles within these longer and bigger picture structures -- structural trends. And one of the things that I find really interesting is how they have consecutively become longer as they've gone on in time. And I think the reason for that is it's -- there's a longer lead time from when you get a cyclical incentivization period, price incentivization, the time it takes for the industry to respond with new supply has just gotten longer and longer. I think we all know the reasons for that. It deals with social licensing, permitting, and generally just much more complex and capital-intensive projects than the previous [ set ]. Well, the last point I'll make on that chart about that forever falling price of copper, that was the common belief in the '90s, it's pretty much the prevailing thought in the renewables space right now, and I'll just -- I'll leave that thought hanging, but we'll cover it again, I'm sure at some point in the future. So the thing that really changed in that 2000 timeframe when the world needed a whole bunch of new copper deposits, because there was a demand surge and what are we -- we got to build some new mines, obviously. Well, the reality was, that what was available were inferior deposits to the previous generation. They were lower grade or they were deeper or more complex, as I said, and that had impact on the capital cost, accruing of new mine capacity that could be brought on. We're going to invest and build lower-grade mines. Well, there's a lot more capital intensity required. It had impacts on operating costs. So the combined impact of capital and then -- or operating costs, which ultimately drive margins, was that the intensity per new pound of copper production or [ count of ] copper production, however you like to look at it, went up. And that's what we call the incentive price. And it's basically just a quick calculation around, at X capital, X operating and cost structure, what does the price need to be to generate a 15% rate of return for a new investment? And that moved up steadily, would have been in the sort of $1 range at the start of the cycle. And as we got to the end of the cycle, of the super cycle, that had moved up into the -- somewhere between $3 and $4 range, pretty substantial shift. We call that geological inflation, because really, it was driven by a change in the types of ore bodies or the quality of the ore bodies that were available for development. It was accompanied by other inflationary pressures. When you get that environment, when copper prices or any [Technical Difficulty] [ metal ] prices are moving up, other pressures [Technical Difficulty] labor to government taxes, those sorts of things. Another key point I'll make here is that, that inflation will continue. The same forces are at play right now as we go into the next generation of copper deposits. Those will be weaker deposits in the last set, and so we'd expect that incentive price to have to keep moving up if we're going to satisfy the world's demand. This is where the royalty angle comes in. As a royalty holder, you benefit from the price increases that come from inflation, but none of the associated costs. So as an operator, the copper incentive price or the copper price might have moved up from $1 to $3, but you're really no better off, because you had the cost side to deal with as well. But as a royalty holder, the benefits are very lopsided. So just again on this copper incentive price, this is math we've been compiling over the years. And what you can see here is that while the commodity cycle last time around bottomed around 2001, 2002, the real point that probably most people remember is when prices [Technical Difficulty] went to incentive. So that would have been around '05 or '06, and that condition essentially prevailed until around the 2012 period. So for that whole stretch, there was incentive conditions for building new copper mines, and incentivize it did. Lots of new projects were built. And of course, it was all done at the same time and they all hit the market at the same time, and now we had oversupply and prices crashed. And so now we've just come through an 8-year -- 8-, 9-year period, in which the copper price has been below incentive conditions, and rinse and repeat. And as of really over the past couple of months, we've crossed back into incentive conditions. So with that said, we'd make the argument that where we're to today is essentially for comparison purposes back to around 2005, 2006. So that's our thoughts generally on where we're to in the cycle. The next thing to consider is how have we positioned ourselves for what's coming in the cycle. We'd argue now that with incentive conditions here, we're at a point in which, to begin with, brownfields type expansion scenarios are on. I'm sure lots are being dusted off, lots of feasibility studies are being dusted off and people are gearing up to begin to invest. It's becoming permissive for new projects to get built, particularly the better ones that might be available. And the other thing that happens as we get across the incentive line is that lots of speculative capital starts to arrive, and that has huge impacts on sentiment and capital availability for the exploration sector, which of course we're also very heavily exposed to. So these are the good times. It's just begun. The starting gun has gone off. Take a quick look back at our own royalty history. So this chart, the line is basically our interpretation of where we've been in the cycle. It goes right back to our founding in 1997. And the first 2/3 of this chart really covers our history mainly as a project-generating exploration business, which allowed us to do very well and make lots of profits through the last up cycle. And around the peak of the cycle, [Technical Difficulty] [ caused ] those products to grow out a more, I guess, to add cash flowing royalties to the portfolio of royalties that we've been building up through our exploration efforts. So the stars on this chart show points at which we acquired royalties, identifies the commodity exposure, and then the bars show the resulting growth that we've had through that wave of M&A-based growth really, which looks like -- or obviously it can be demonstrated here, turned out to be very accretive and has led to strong cash flow per share growth over time. So this is the M&A phase, below-market, weak sentiment, weak prices. We held onto our cash from the peak of the market, conditions got right, and we got very, very busy. A quick look back as well, just in terms of how things have played out. So we show the dates of various acquisitions that we made, the purchase prices. Next, the revenues that have been realized in those investments to date. And then we show what the current net asset value of the remaining lives of those assets looks like, based upon how analysts that cover us today have valued them. And you can see as a final result here that it's worked out generally pretty well. Most of these were in great shape on with respect to fairly rapid paybacks and strong accretion and further growth. Coal would stand out as an example in which seems very unlikely that we'll actually recoup our investment amount on. However, I point out that we could see this coming, thankfully, early enough to pivot, and we took the remaining revenues to build up what we call our renewables platform, which is now a public company called Altius Renewable Royalties. And so if the growth that's happened since we began investing there is factored in, we feel like we have been able to fight back what was lost on the coal side of things. So generally speaking, on a look-back basis, we're pretty happy with the results of our wave of M&A. So this is how things have translated. Royalty revenue per share over that timeframe has been very strong. Again, it's been M&A-focused. It's had excellent translation on a per share basis, which is the only thing that really matters. But with the earlier arguments that I've made around where we think we're to in the cycle, we don't believe that this is the time now going forward to be as focused on trying to continue to grow the business from an M&A perspective. The reasons for that are fairly simple: a, the prices that you would have to assume in modeling the value of assets relative to the expectations of the sellers are obviously not as favorable as they would have been. But perhaps, way more importantly, other competing sources of capital that owners of assets might have that would consider selling royalties are much more competitive. When we were buying most of our royalty positions, not only was -- were other sources of capital not competitive, in a lot of cases they were nonexistent. So that condition has definitely shifted now, and there are many other ways for owners of strong assets or owners of existing royalties to avail of capital. So what we offer is just not as attractive to sellers at the moment, and that's just fine. Because the other thing about what we were doing when we were trying to be countercyclical buyers of assets and to build up our portfolio is we were quite selective about the types of assets that we were looking for. We wanted assets and royalties that in the fullness of time and over cycles, all parts of cycles, that would ultimately benefit from higher prices in better parts of the cycle. But more importantly, that those better parts of the cycle would cause incentivization and growth of assets, and we wanted those assets that look most likely to be beneficiaries of that. So we're -- forward -- our forward focus for the foreseeable future is growth that comes from the price appreciation, and I think more importantly, at its heart, the potential for further volume-based growth that's more permanent to come into our structures. So that brings us to what we see as the growth drivers for our business going forward. And again, this is what this presentation is meant to deliver to our shareholders today, is to give a better sense of what we see that could go right, now that we've crossed this important inflection point in the overall commodity cycle. First driver is as big-picture as it gets. We think that the types of commodities and assets that we have aligned our shareholders with are the right commodities and the right exposures. These are -- they're set up for where the world is heading, and that provides amazing tailwinds, we believe, for investment in the assets that we hold royalty exposures on. Prices. Obviously, anyone who's been watching things over the past year, who'd have guessed it, but COVID would be such a catalyst to finally break the down cycle and to push us back into incentivization. But there's lots of reasons for it. It goes to stimulus and post-COVID recoveries and particularly the type of recovery that most governments are seeking, which is a very green recovery. So across the board with the exposures that we have, it's been a great year. And this obviously should reflect very nicely in our revenues as we go forward. So that's the easy part. This goes more to the volume side of things. So if you're, again, predicting which assets that you can buy into that will ultimately get better with time, the first ingredient you need is assets that have lots of resources. So you want assets that, if you expanded the production rate, still have meaningful mine lives ahead that can justify the capital investment there. And we'd argue that on a comparative basis, our overall remaining resource life, factoring in all the resources and potential, would be pretty much unrivaled in the business. So first critical element, do the resources support growth? I would say resounding yes. And the second important factor is, well, what do the economics of those assets look like? Prices are higher. Margins are higher. Business is making more money per unit of production [ while ] you've got incentivization conditions. The logic is to produce more units to improve your overall margins. And in the far right column in this table here, you can see that, again, this test is very well met. These are wonderful assets that produce excellent margins now. And maybe more importantly, they also produce great margins even at bottom-of-cycle prices. That's the other benefit about being a bottom-cycle focused investor. Half the work is done for you in terms of your risk profile. If you're at low point -- low price points in the cycle, and these things are still running profitably, well, that's a pretty good test about their overall full cycle endurance levels. Well, that sets up sort of the big picture. What we'll do from here is we'll drill in commodity by commodity, or segment -- business segment by business segment. And today, we're going to start with iron ore. I'll have a few introductory slides, but the main event on the iron ore part of this presentation today is going to be handled by David Cataford. So I'll do a couple of slides here just on a big picture from our perspective specifically, but then we'll hand it over to David, who's going to again -- who's very graciously agreed to come on. I know he's here in the wings. Let me get myself set up. The greener steel transition. I don't know if anyone has read Bill Gates's new book lately, but he calls steelmaking one of those hard to fix areas, and he's not wrong. But one of the ways that greener steel can be achieved is just by dealing -- in terms of what inputs you use in the making of steel. So this is a chart -- like people focus a lot on the grade of iron ore. Is it 62% or 65% or 66% or 67% in the case of Champion and David. It's fine, it's a proxy for quality. But what it really -- what's really more important here [Technical Difficulty ] is to think about well, what makes up the [Technical Difficulty] [ vantage ] points. Well, first and foremost, these are iron oxide. So a lot of it is oxygen, but what's left after that are impurities, and these impurities are what matter the most. If you run a 58% iron content iron ore, that means that you're also putting 17% impurities into your steelmaking plant versus running a 66% high-quality iron ore, well, that has only 6% impurities. So there's almost 3x as much impurities between low and high-quality iron ore. So the difference between 58% and 66% doesn't sound like that much, but when you think about it in terms of 3x more impurities, it does make a difference. These impurities greatly influence the operational efficiency of steelmaking. They have a big influence on the relative pollutive impacts from different inputs in steelmaking. So a few things have been happening lately. One is that the cost of emissions associated with steelmaking are becoming priced into the steel, and more so than ever. These used to be just forgotten about. They were no, never minds. Well, they're not anymore. It's really, really important. So this has had big impacts on influencing the type of iron ore input that most steelmakers are seeking. The other thing that's been going on is, yes, there were a lot of new -- there was a lot of new iron ore production that was incentivized in the prior cycle. A lot of that, however, was of inferior quality to what would have existed previously. It's particularly true for the bulk of the production, which has come from Australia. So overall, the overall impurity levels of iron ore have gone up pretty significantly. When you [Technical Difficulty] come [ back] to the fact that the emissions that come from those impurities are now being priced, I think it goes 90% of the way to explaining the structural bifurcation that's begun to happen around the various grades and qualities of iron ore, and so that's shown in the chart here right now on the bottom right-hand side of things. The Labrador Trough where Altius is active, where Champion is active in iron ore, produces potentially, probably the very highest quality, lowest impurity iron ores in the world. So for years, you would have heard about the Labrador Trough as being disadvantaged because it was far from markets, had to be concentrated, those sorts of things. Those disadvantages have been very much overwhelmed recently by its great structural advantage. And so after many, many decades of production history, I think the Labrador Trough is coming into its heyday. Our royalty revenue to date comes from our indirect holding in the IOC mine, where we're shareholders of Labrador iron ore, which is a pass-through vehicle for royalties and equity interest of the IOC mines in Labrador. These are ultimately operated by IOC. So there's a couple of ways to think about potential growth there. First and foremost, they have gone through -- these mines have gone through a wave of expansion in the last cycle that were designed to bring nameplate capacities up to about 23 million tonnes per year. To date, that hasn't been achieved. Basically, the investment wasn't fully completed, is what I would argue, in that there are still investments to be made to debottleneck processes in order to bring production up to that full nameplate [Technical Difficulty ] [ capacity ]. And this represents potential for about a 20% increase in production levels. And I would point out as well that as recently as a month or so ago, when Rio Tinto talked about IOC, they have begun to allocate capital towards those types of debottlenecking investments. No surprise, given the overall prices that they're receiving per tonne of production from these mines right now. The other thing about IOC and Rio Tinto is that it's been a bit of a strange relationship, I think. It was bought -- it came into Rio Tinto as a secondary part of a transaction that brought them a lot of assets in Pilbara, Australia. They've been kind of lukewarm on it for a long time. I think it was widely rumored to be for sale for a number of years. That didn't happen. But something interesting did happen last year, and that was Rio Tinto [Technical Difficulty] taking in quantities of IOC, super high-quality concentrates and blending them with some of the newer low-quality incremental production that comes from the Pilbara which, in some cases, are -- the quality is such that there's very weak demand for them. So IOC's relevance, I think within the broader mix of production within Rio Tinto, has taken on a whole new life which takes us to a bigger picture musing, if you will, and wondering if more expansion isn't in the future. And I'll just point out that as recently as in the prior cycle when they were talking about -- or in the process of taking their production levels up to 23 million tonnes, they were openly talking about further options to grow production from those assets, first to 30 million tonnes, 50 million and even 100 million tonnes beyond that. This is a rare place that has lots of resources and probably just as importantly or more importantly, a lot of available infrastructure, and you compare that to some of the other future production areas of high grade that might come into the market, namely in Africa, the huge difference is that the infrastructure is already in place, whereas those costs will be gargantuan to open up some of the new other potential districts that are out there and available. So immediate growth potential just from debottlenecking and then longer-term potential, depending on what Rio Tinto decides to do and how they prioritize investments going forward. Kami is a project that we've been involved with for a long time. Our exploration group basically put the project together and drilled the first holes. And it made great strides through the last cycle. There were joint ventures and equity capital availability for the project that saw a few hundred million dollars invested in defining pretty large, very high-quality ore bodies, and it reached a point that feasibility studies were completed that indicated a strong project even at then prices. They're obviously much higher right now. But probably the biggest event that's happened with this project since it's been part of Altius -- we hold a royalty really on the project -- is that it's now found its way into the hands of Champion Iron ore. And Champion, who we're about to introduce, is -- I can't think of a better group to explore and hopefully exploit the full potential of this deposit. So with that, I'd like to introduce David Cataford. I first met David with Michael O'Keeffe back in the early days of Champion being interested in the Bloom Lake deposit. He struck me then as a fairly meticulous, get 'er done type of fellow. He's probably the perfect complement or even alter ego to Michael's boldness and contrarian vision. It just struck me as, well what a great team. And this was a big part of Altius's decision to provide early financing for Champion and their ambitions at Bloom Lake. I think everyone here will agree that the execution on that story has been nothing short of remarkable. And certainly, it has exceeded any expectations that would have been out there, which would have been very low, as David will attest. It wasn't an easy job to get that first capital to get things running. But in hindsight, this project and the story and the execution there, I think, will go down in the history of mining stories as one of the best ever, no small part due to the incredible execution which was led by David. We're really proud to have played a small part in that story, and we're very proud to have David joining us here today to explain the Labrador Trough district and the important role it has to play in the world as it shifts to a cleaner steel future. So with that, David, I'll hand over to you, sir.

Thank you very much, Brian. I think you undervalue the contribution you made when you helped us finance the initial stages of Bloom Lake. If we go back to 2017, that's roughly when Canada was legalizing marijuana, and a lot of people thought that our restart of Bloom Lake was linked to that legalization. So to having Altius be able to believe in us and help us move forward, I think, was fantastic and the start of a long-term relationship, as you mentioned now through the Kami project. The way I'd like to maybe spend this 20 minutes of time is to go through a little bit who we are, but then focus really on what is the real potential of the Labrador Trough in terms of the next era of steel production. And I think Brian hit the high points, and there's some figures and some numbers that I'd like to run by you just to convince you of the potential of this area. So high level, who is Champion? I think Brian introduced us very well, but at a high level, we bought Bloom Lake in 2016 and then started up the project in 2018. Our goal was really to -- when we bought the asset to make sure that we can drill down, do a complete feasibility study on what is required to make sure that we can operate Bloom Lake through all cycles and with a decent profitability when the market is down and a very good profitability when the market is up. And that philosophy is the same philosophy that we're putting into the Kami project that we'll discuss at the end of the presentation. So what does that mean? Well, we essentially did a feasibility study on Bloom Lake to bring it up to 7.4 million tonnes per year. The previous owner had not been able to produce more than 6 million tonnes per year. For us, 6 million tonnes per year was a little bit difficult to have a project that could sustain cycles. One of the very fortunate portions of this project is really the fact that the previous owner invested over $4 billion into the actual assets. So forget the purchase price. Actual dollars in the ground, we're talking of $4 billion. And the biggest advantage that Champion has is that we don't have any debt associated to that $4 billion investment. So we were able to bring the project in line in 2018, as I mentioned. And the great news is it only took a few months to hit commercial production and then another few months to hit nameplate capacity. And we've since surpassed nameplate capacity, and we're operating at a level of roughly about 8 million tonnes per year. What we're doing now is to complete a construction project that the previous owner had started. We're finalizing what we call our Phase 2, so going to 15 million tonnes per year. That project is on track to be delivered mid-2022. So by mid-2022, we'll be operating at a level of about 15 million tonnes per year, producing one of the highest grade materials in the world, around 66.2% iron content. And we've also recently demonstrated that we can produce an even higher grade material that is at roughly about 68%. And as Brian mentioned, that difference might seem small, but we'll be able to demonstrate the real impact of being able to do that. We have a 20-year mine life right now, but realistically, we have about 5 billion tonnes of resources. So right now, in terms of reserves, we have 20 years at the doubled capacity, so operating at 15 million tonnes per year, but we're working to be able to expand that. With the acquisition of Kami, when we look at the next steps of our company, next year, we'll be producing 15 million tonnes per year. We then have debottlenecking projects to be able to bring us to 18 million tonnes per year. And when we look at the combination of Kami and Bloom Lake, our target is to be able to go up to 30 million tonnes per year. One last note on our company before I shift more towards Labrador Trough and the potential, is the fact that management and directors own just over 11% of the company. So every time we take a decision, it's fully aligned with all shareholders because we're all major shareholders as well. If we look at the sort of ESG chart, our CO2 intensity chart, I think a lot of people in the past have focused on strictly the cost curve, and as Brian mentioned, compared Labrador Trough production as being sort of third quartile production in terms of cost. When we look at the future, we really see that being able to shift as, yes, there is a certain cost to transform the material. But one, when you factor in the premium that we're getting for our material and you also look at the CO2 intensity chart, well, we really see that the Labrador Trough differentiates ourselves. If we look at the graph that you see up here, you can see that in terms of CO2 intensity per tonne of iron ore produced of all the concentrate in the world, Champion is positioned at the very, very beginning of that chart. So we benefit from hydroelectric power. About 70% of the energy that we use at Bloom Lake is renewable energies. And few people know this, but we're actually a mining company that receives carbon credits. We don't have to purchase them, because we're well below the 25,000 tonnes of CO2 permitted for companies of our size. So this really differentiates ourself as a greener story in terms of iron ore production. The real focus I find, though, it's all well and good to be able to produce low CO2 emissions at your site. But what is the impact on the actual clients that buy our material? So what is the Scope 3 or the CO2 emissions that our clients have when they use our material. And that's when you see in the lower chart that we're also at the bottom of that chart in terms of CO2 intensity on the Scope 3 level. And we'll dig a little deeper into that, because I think that's the game changer of the Labrador Trough. And when you look at countries or continents like Europe and Japan that have very aggressive targets for 2030 to be able to reduce the CO2 emissions associated to steel production, and when you factor in the potential cost associated for carbon credits getting to 2030, well we can see that the cost of using Labrador Trough material to produce steel is going to be much lower than what you can see in other areas in the world. What does that mean concretely for Bloom Lake? Initially, when we purchased the project, our main target was to associate ourselves with a Japanese market. The Japanese market like high-grade material, because it's not only good for the environment, but it helps the larger steel mills be more productive. And especially in times of high prices, while it's interesting to see that the steel mills want to produce more steel out of their infrastructure and the easiest way to do that without investing any capital is to buy higher grade material. So you have less impurities to melt down in your steel works. The second portion that we saw, and that was a real eye-opener, is when the pandemic first hit. If we turn over to Japan again, you saw that Japan reduced by about 30% the steel output when the pandemic first hit. And you might think that, that had a trickle-down to all of the purchasing that they did on their iron ore, but we actually saw no Canadian shipment be canceled. So even if the Japanese market lowered by 30% their steel output and reduced essentially by 30% the quantity of material that they purchased, they didn't cancel one single tonne out of Canada. Because what do they do when they lower production, they'll shut down the smaller, less efficient blast furnaces, and they'll keep running the higher efficiency ones. And to be able to maximize the productivity in those larger steel works while they want to maximize the amount of high-grade material that they purchase. So for the 66% material or a typical iron ore, we can see that, that is critical for markets like Japan, markets like Europe and more and more in markets like China as well. But we didn't stop there. What we sought out to do about 4 years ago when we bought Bloom Lake is, yes, we know we can produce 66% material, but can we actually do better? Can we get towards a DR-grade type material? Because the disadvantage of producing 66% material, it's not quite high enough in grade to be able to go down the electric furnace route. So we're a very high-quality material for anybody that uses it in the blast furnaces, but it was shutting off a portion of the market, which were the electric arc furnaces. So we started developing in the lab, what is the highest grade that we can achieve with our material without having to invest significant CapEx? We didn't want to have to regrind the material finer, and then you have moisture issues because your material is so fine that it's capturing moisture. You have logistics issues, because as your moisture goes up -- well, then people probably know this, but it gets rather cold in the Labrador Trough, so high moisture and finer material combined with cold makes logistics more difficult. And it also makes logistics more difficult for our clients when the material arrives at their facilities. So it's not just a solution of being able to grind down the material and producing high grade, it was really a question of what is the best grade that we can achieve without going down that more complicated route. And what we saw is that our material in the lab can actually produce 68% Fe content, so roughly a 2% increase. We then did a pilot plant inside of our operations to see -- it's all well and good to work in the lab, but can this actually work in the operations. And the results were fantastic. So we started modifying the actual operations at Bloom Lake to be able to produce this material. We saw that we did not need to invest a single dollar of CapEx to be able to produce it. It would cost us roughly about $4 a tonne in terms of loss of recovery, because we didn't add anything in our circuit. So to produce higher grade, we had to tweak the circuit to be a little bit more selective, which threw out a little bit of iron ore, which results in about that $4 loss. But we saw in the market that we're getting margins of roughly $5 to $9 per tonne. So that loss of recovery made sense. But what we did working on our expansion was adding in equipment at the end of our recovery circuit to make sure that we can lower that cost impact of producing this material. But if you factor in the current operations, what we've managed to demonstrate last year is we actually produced 3 full cargoes of this 68% material without having to invest a single dollar in CapEx. If you look at our investment project with Phase 2, what we're currently doing now are $450 million finishing of the initial expansion, while we see that we're adding some equipment at the end of the recovery circuit, and we're also retrofitting the Phase 1 project in that CapEx program to be able to produce that 68%. When we look at the chart just below in the presentation that you see here, the blue elements are where Bloom Lake is actually positioned. So you can see that once we do that 68% iron, there's very little competition in the world. And where does this competition come from for this DR-grade type material? We're looking at countries like Russia, Ukraine, Brazil, Peru, a little bit Sweden. So apart from Sweden, you can see that these are jurisdictions that are not as stable as the Canadian jurisdiction, Canada being one of the safest and most stable jurisdictions to mine in the world. So we really set ourselves apart not only as a product, but also where this product comes from. And if we go back to the previous chart that we saw, not only in terms of jurisdiction, not only in terms of quality, but also in terms of CO2 emissions per tonne produced. So the disadvantages that people initially thought a few years back on the Labrador Trough being a little bit further away from their clients, you could see that the impact of the grade, the impact of the CO2 intensity per tonne of iron ore produced, really puts us in a more advantageous position. And why is this important? I think everybody is looking at ways now to be able to reduce CO2 emissions at their sites. Bloom Lake did a fantastic job when we actually started the operations, because we went out to actually invest significant CapEx in 2017, and we've already managed to reduce by 40% the CO2 emissions produced at Bloom compared to 2014. This is by producing the 66% material. But I'll take you to this next chart right here. What we see on the Y axis is the tonnes of CO2 produced to transform 15 million tonnes of material, and we've put grades that you can see through the history of Bloom Lake and through the future of where Bloom Lake is going to go. So roughly to produce 15 million tonnes or to use 15 million tonnes of iron ore from Bloom Lake, transform it into steel, represents roughly about 18 million tonnes of CO2 emissions. When Bloom Lake was initially operating, its average grade was 65.5% iron. When Champion restarted the operations, we lifted that quality to 66.2% iron. That might look like a very small difference, 0.7% Fe, but the impact for our clients has actually allowed them to reduce by 140,000 tonnes of CO2 emissions per year. Now that might look small, but when we look at the comparison of that number, all of Bloom Lake with Phase 1 and Phase 2 operating at 15 million tonnes per year is going to produce about 100,000 tonnes of CO2 emissions per year. So by increasing the grade of 0.7%, we've actually offset more than 1.3x the emissions that the whole site produces. If we look at the new product, the 68% -- or we put it at 67.4% to be a little bit more conservative here -- but that increase in grade from the 66% to the 67.4% allows us to further reduce for our clients 250,000 tonnes of CO2. That's another 2.5x all of the CO2 production of Bloom Lake that we've managed to reduce from the -- for our clients to be able to produce their steel. Now the next step that we're working on, that we've demonstrated in the lab, is that with a very small regrind without bringing our material too fine that we get into all of those issues that I talked before, we can actually bring our material up to 69.5%. That is one of the purest materials in the entire world. The theoretical maximum that you can actually reach is about 70%. Because you don't mine pure iron ore or pure iron, there's iron plus oxygen. But to get to 69.5%, then we start selling to pelletizing facilities instead of sintering facilities, and this allows the clients to be able to reduce by about 1.8 million tonnes of CO2 emissions per year, 18x the full CO2 emissions that Bloom Lake produces at its site. And if we go that final step down the road and associate ourselves with producers that not only produce steel, but they use the electric arc furnaces and the [ DRI ] route to be able to then feed their steel works, well, then we can reduce by just over 8 million tonnes of CO2 emissions per year. So 80x what we actually produce at Bloom Lake. So although it's important for us to continue working on reducing CO2 emissions at the site, and we have a list of initiatives that we're currently working on to not only stop at that 40% reduction but continue going forward, but we also see the potential on working on the actual product, because the impact is much more significant than the tonnes that we can reduce at Bloom Lake. Now this brings us into the next phase of growth, and why did we tell the market that Bloom Lake is working on a new feasibility study for the Kami project? So we're very proud of having acquired the Kami project just recently. We've been working on this for the past 5 years. We've had about 4 tries to be able to acquire the Kami project. So it's not just a last-minute idea that we had because an asset became available through a bankruptcy proceeding. It's a project that we've been targeting for quite a while. Why? Because we think the quality of the material in the ground is fantastic. Our view is that the route that was taken with the feasibility study is not necessarily what we want to do. We want to redo the feasibility study to go into those higher-grade type materials. The current feasibility study of Kami brings the material at about 65%. We want to bring it higher to those 68% and potentially 69% range. So that's why we want to redo the feasibility to be able to increase not only the value of the material that we're selling, but also reduce the CO2 emissions for our clients using this material. Our view is we want to be a niche product where we're the lowest CO2 intensity products in the world and clients that actually are willing to pay for this type of product, well, we'll make sure that we have higher premiums in the future. So this is the main reason why we're redoing the Kami feasibility study. The second is it's just a few kilometers away from Bloom Lake. So it made sense for us to imagine, are there potential synergies between the 2 sites to make sure that we can bring this into production sooner rather than later. Because we do feel that there is high demand for this type of material and that this material can have a change for our clients in the future. So you probably already know the resource base out of Kami. A significant amount of money has been invested to be able to define what's in the ground, and we hold around 1.7 billion tonnes of resources right now. So we're looking at decades of operation in a range that we're looking right now between the 8 million and 12 million tonnes per year. So that's the work that we're currently doing that we want to be able to deliver -- that we want to be able to deliver pretty much at the same time as we deliver our Phase 2 project to allow us to continue working on the next growth phase. So high level, these were the messages that I wanted to discuss with you, and had chatted with Brian that I would try to complement today's Investor Day for Brian. And I'd like to turn it over to questions if anybody has any questions for me. Thanks again, Brian, for this opportunity.

David, thank you. That was fascinating. That last chart there showing the capital -- or the CO2 intensity differential. What was amazing to me is that you only showed it from your starting point of 65%. You've got to take that back and compare it to the rest of the world's production and see what a difference it makes. Bill Gates is going to be pinning a medal on you before long. Flora, are we open for questions?

Yes. So I'm Flora Wood, Investor Relations. I guess I know most of you, but I'm hanging out over here in -- on the conference call line, and we'll get Christy to just instruct on the Q&A. And just to remind you, this is the first of 2 Q&As. So we'll do this one, and then we'll go back to the presentation and open it up again at the end.

Yes, that's right. We wanted to let David -- get David off the hook and any questions for him to get to it, and move on to the rest of the presentation. David is a busy man. He's got to go back to work and try to figure out how to save the world and [ build pricing ]. So we don't want to have him tied up here listening to us talk about potash and project generation and those sorts of things.

[Operator Instructions] And you have a question from Craig Hutchison of TD Securities.

David. My question has to do with the incentive price. I know you guys are obviously working through the feasibility study. But what do you think an appropriate incentive price is in terms of the 65% iron ore to bring on additional supply like Kami?

Yes. Thanks for the question, Craig. I think you know us a little bit by now. We're a very conservative company that if we put ourselves aggressive internal targets. But if you look at the feasibility study that we did for our expansion, we used a realized price for our material, so around 66% at USD 84 per tonne. Today, we're trading at roughly $265 per tonne. But I don't feel that a long-term price of around $70, which I'm seeing from most analysts for the 62%, is a proper price. I think sort of target for our material in the range of a realized price for us of about $100 makes sense. But we want to do a little bit more work as well on the premium for the DR market. So as you know, in our current feasibility for Phase 2, we put 100% of our material as 66% and kept all of the potential upside of the DR-grade material as an upside, not factored into our numbers. We're going to look at the Kami project maybe a little bit differently as we potentially want to target a higher grade material. But roughly, our view longer term, if the Kami project can make sense in the scenario of roughly about $100 realized price for the 68% material, that's a sort of internal target that we're giving ourselves.

Okay. That's great. And assuming you guys obviously, you finish up the feasibility study later this year. How quickly would you be in a position to sort of green light the Kami project?

I think it depends, Craig, on the -- where the iron ore price is going to be next year and where is the sort of high-level scenario. I think one point that Brian touched on that was maybe sometimes under-understood -- and obviously not by you, Craig, but sometimes in the market -- is the lack of infrastructure for iron ore projects. So if you look around the world, a lot of new production came online in the past cycle, because Australia and Brazil were able to ramp up their assets, but they had capacity in the infrastructure. Today, infrastructure is pretty much full. We can debate that Brazil probably still has a little bit as Brazil ramps back up their production, but Australia, the ports are full. So if you want to bring on a new project, you need to build new infrastructure. And that's why typically a new iron ore project is going to take between 6, 7 years to up to 14 years from being sanctioned to actually being delivered. We don't have that issue in the Labrador Trough, at least not for now. There's a lot of rail capacity on the QNS&L rail. And as you know, we operate out of a new multiuser berth owned by the Quebec government. That has received now recently $130 million investment from the government and last year, $180 million of investment from the government. If you combine that with the berth that was built, there's about $500 million of investment from the government, federal and provincial, that have been invested in that port to be able to bring it up to 50 million tonnes. But with just a small investment, we're able to double the berth capacity to 100 million tonnes. So all that to say that there's spare capacity on the infrastructure side to be able to bring a Kami project online. I don't want to give numbers that are unrealizable, and you know that's not how we operate. So I won't give you a specific number. But what I can tell you is that we're going to deliver the feasibility study next year. And to be able to take a project like Kami combined with Bloom Lake into production, it's going to take a whole lot less than the 6 to 14 years that is typical in the iron ore space, because we don't have the infrastructure issue.

Okay. Great. And one last question for me. You talked about getting premiums for your low CO2 emissions. Have you had discussions already with some of your off-takers in terms of getting some premium for that product? Or is that more discussions kind of going forward with respect to the Kami product?

Now what's funny is we're now getting people calling us that actually want equity in the project level. And we said, "Well, the time for that has passed." So we're not in that world anymore. But we now see a lot of people that want to secure a product and are even willing to secure product at pretty decent pricing because what we sense is that today, there's a 62 index. And this has been there for -- since the beginning iron ore was traded. There was also a 65% index, which it took a few years for the Labrador Trough to actually sell on to. The 65 index is a typical material from Brazil. Labrador Trough didn't have all the same specs of this material, and it took a few years to be able to crystallize all of our sales onto that index. There's more and more talk that there's a new index that is coming for the DR-grade-type material. And that will trade closer to potential scrap prices, obviously, at a discount to scrap prices, but more in that territory, decoupling itself from the bulk of the iron ore and being on that level. And that's why we've seen more and more interest from clients wanting to secure quickly tonnes and potential pricing formulas on the 65 index because clients are concerned that there might be a shift in that. So our view is that we've never hedged our commodity, and that's not what we want to do. If the 69% or 68% index does get created, we want to keep full flexibility to be able to sell on that index and fully benefit from that pure premium in the future. So I don't know if that responds to your questions, Craig. But...

No, I appreciate the color, David.

Your next question is from Brian MacArthur of Raymond James.

Just following on the premium theme because, obviously, it's very important. David, you talked about it with roughly $4 a tonne to get to your DRI material about 68%. And you did make a comment that you think you can get to that 69.5% without a whole lot of extra cost. But obviously, once you get there, there's even a much bigger function for what you might be able to do in the premium given the CO2 emissions. Can you -- are we talking extra $5 a tonne, $2 a tonne, $10 a tonne? Are you willing to give any guidance on what that extra cost to produce that even higher premium material would be?

Yes. Brian, good to hear your voice as well. We're currently doing the feasibility study to be able to do a full 8 million tonnes per year of this 69.5% material. It's a little bit early to give an official number. I can give you the number that I had in my head when we started working on that project, and that was roughly about a $6 per tonne. Our view is that if we're able to do all of that for an extra $6 per tonne, the potential premium in the future we feel is going to be much bigger than that $6. And we feel that it -- if we're able to deliver that feasibility study in that range, I think that's a game-changer in terms of revenues for our company.

Brian and Craig, I think that's all we got in the live queue. And we've got questions here by e-mail, but they really pertain more to what we're going to talk about next. So really want to thank David. And David, you can log off and we'll go back to Brian on the webcast.

David, thank you, again. Fantastic talk. Really, really informative.

Thanks, Brian. Have yourself a great day, and thanks again for the opportunity. Speak to you soon.

Talk soon. Okay. We're going to keep moving along here. So the next topic for us today will be on the Potash side of things. And I know we get lots of questions. It's not the easiest thing to try to figure out all of the moving parts within our Potash royalty portfolio. It's really an important part of our business. And if I had to single out one area that I think that probably there's the widest divergence between probably where most people think this -- what part of our business, there's the biggest difference between how other people value it and how we value it internally, this would definitely be it. So we've tried very hard to do a bit of a deeper dive and give people a sense of what it is that we see here that makes this part of our overall portfolio so valuable. So to set things up here a little bit just on the pricing side. If you look at the top chart, Midwest corn belt Potash prices, it looks like Potash is a real laggard over that timeframe, and it somehow hasn't participated in the rallies that have happened. But it's really just a function of how high those prices were back in 2009. In reality, over the past 12 months, Potash prices have moved up from the sort of mid- to low 200s up into now the 350, 400 range. So things have done very well. But again, compared to how far they went in the last -- in the fullness of the last cycle, it does look like it's a bit of a laggard. The bottom chart here, I know is going to be interesting, particularly to some of the analysts. There's lots of questions around what's our realized price and how does it relate to the market prices that people see quoted. First and foremost, I think it's important to point out that our royalties are what are -- they're characterized as mine gate royalties. So it's the realized price at the mine. So there'll be a differential that relates to the incremental of Potash prices in local markets that ultimately is more due to logistics and transport. We don't get paid royalties on transport costs. We get paid royalties on the value of Potash. So in looking at this going forward, we've superimposed our realized price, which is the dark blue line here on a couple of proxies, one would be the Midwest corn belt price and the other is Brazil. And you can see that there's pretty good correlation. The difference would really be just those logistic elements. You can also see that there can be some lag impacts here. Often, Potash is priced one day, but the recognition of the sale doesn't happen until it reaches the destination market. So you can get lags, and they'll happen in both directions. If you can think about producing Potash in Saskatchewan, railing it across the Rockies out to a port in Vancouver or down the coast of North America through the Panama Canal and into Brazil, it can take a little bit of time. So I guess the long and the short here is that there's been a big run-up in prices recently, that we would have just published Q1 results. Not much of that has yet been captured in the revenues that we've received. But you can see that since our acquisition in 2014, these things do tend to balance themselves out over time. And it has been a nice run, 200s into the almost 400 range right now in the Midwest. Bigger picture. This is really -- probably no other part of our business is bigger picture, does it matter as much. Since 2000, going back to the sort of the copper slide at the outset, there's -- there are a lot more people that need to be fed, 1.6 billion. The amount of land that's available to feed those people declines as a function of that growth. So it's almost akin to that units of copper per person combined with the population growth, it's the same kind of impact. And what it's translated to over that timeframe is a substantial increase in the amount of Potash that the world uses just in the past 20 years or beginning of the last super cycle. We use about 70% more Potash now than we did then. And that's been growing at about a 2.7% compound annual growth rate with lots of internal lumpiness within, but that's the big picture backdrop. I'll also point out one thing that I really like about Potash. You don't ever hear about recycling. Now within that growth, a steady 2.7% population and arable land percentage growth trend. The mines that we hold royalties on, that portfolio collectively has grown faster than that 2.7%. Since we made our acquisition, volumes from within the portfolio have actually grown at about a 5.5% compound growth rate. And this is -- the timing of that, you can see on the chart when it begins to ramp up there over that period, is because of a number of expansions that had been incentivized in the previous cycle and that big spike in the chart that I showed to begin with came to market, and the operators and producers that run the mines we received royalties on have been steadily gaining market share on a global basis using that expanded capacity potential. And the other key point here is that to reach full nameplate capacities that were funded in the last cycle, there's still about 50% room to grow out volumes here. So this isn't a maybe. This is a fund that it's built. There might be some incremental investments to make it operational. But the bottom line is that there is embedded growth potential of 50% already sitting within our portfolio today. This case, you have got global demand growth. You've got outsized growth within our portfolio beyond that or within the mines that comprise our portfolio beyond that. And we've even seen higher growth rates since we made our acquisition when you drill down to the royalty level. And the reason for that is we don't own the same percentage interest in royalty interest in the different mines that are within the portfolio. We hold higher percentage interest in the lower cost and better mines. So over the past number of years, there's obviously been rationalization within portfolios towards bringing on production first and preferentially from the better and lower-cost operations. And what that's done is it's actually given us about an 8.2% growth rate in annual production volumes since we made the acquisition. I'll touch quickly on another common question that we get is, what are the royalty rates and how do they shift. What happens with these operations is that an area gets blocked out for an extended period of time, that will be the mining area or the unit mined plan area within a particular operation. And then what happens is that within that unit area, there might be multiple underlying landholders. The operators themselves would own pieces of land. The government would own pieces of the land. And we, through our extensive freehold interests, would be part of that picture. And so you just divide up who owns what within that planned longer-term unit mining area, and that defines the unitization percentage. And then that unitization percentage ultimately gets multiplied by a 3% gross royalty rate. So Rocanville, Esterhazy, the 2 big lowest cost mines in Saskatchewan are actually the ones that we have outsized interest in. So that explains how 2.7% globally becomes 5.4% at the mine level. But at the royalty level for Altius since our acquisition, it's been over 8% annual compound growth. Further to what I was just describing, so this shows the individual mines. The orange bar basically identifies the bringing on of new capacity following expansions. And then the bars with the blue component basically representing production since we made our acquisition being the relative growth of production. So Rocanville, obviously, has ramped up into that Esterhazy steadily. You get some real insight when you look at this into where the cost structure of these various mines might be. Vanscoy has been declining, obviously, and I guess those tonnes have been going to the other lower-cost operations. The other thing we show here, and I hope the analysts will appreciate is that we've done the math on the unitization percentages. And so you can see what the effect of royalty rate per mine within our portfolio is. Let's think to the future. I know this for some people will seem strange. Everyone talks in Potash about all the extra capacity there. There's all this doom and gloom about there's too much capacity, and when will demand ever catch up? Well, sooner than a lot of people think. If you look at the production growth rates from the mines that the portfolio mines that we hold, on a 20-year basis, it's been about 4%. But when you just take in the time since the last expansion or the big expansions commissioned, again, these have been growing over that 10-year period at about 5.25%. You continue those trajectories, these things reach full nameplate capacity by '27, '28, '29. It's not that far away, particularly when you consider the fact that the timeframe to bring on new capacity even at a brownfields level in Saskatchewan could be 5 to even 10 years' time. So basically, what we're saying here is that it's not a stretch to imagine that we're much sooner to, I guess, at least talk beginning around the next phase of expansions. Because the alternative is, if all of these trends hold up, is that the operators are going to find themselves in a position probably not dissimilar to '06, '07 where they couldn't meet demand expectations, and so they'll either lose market share or prices will react very strongly. And I don't necessarily think that's in their long-term plan. Anyway, just some food for thoughts from a royalty holders' perspective. There's growth available, 50% from current levels. But we wonder about -- we wonder how long it's going to be before we start also having -- we're also starting to talk about the next phase of growth beyond that. And I'll just point out, again, we're royalty holders. Potash production, to bring it on, takes a long time and it is very expensive. At the royalty level, we are full beneficiaries of any growth that might come, probably sooner than people think with none of the associated costs. Quick thoughts on where we think prices need to be to bring on that next level of production. Broadly, I view Saskatchewan probably as the most favorable jurisdiction in the world for new incentive -- or for new growth as the world needs more Potash in the future. It has an awful lot going for it in terms of deposit quality, but also political stability, which really matters when you've got that kind of capital intensity and duration really goes to your cost of capital. So it's really hard to compete with Saskatchewan. So we ran some math. We looked at all of the brownfield expansions that took place in Saskatchewan during the last cycle. And what that resulted in was about an average of $976 a tonne in capital intensity. So we looked at it the way we've been looking at copper for a long time and just tried to figure out when we look at noncurrent operating costs as well as that CapEx intensity number, what would it take to generate a 15% return? And based on those numbers, we came to about just over USD 400 a tonne in order to incentivize more brownfield capacity to meet that return hurdle. When you take it to the greenfield side of things, it's much more dramatic. So we had a couple of data points to work with there. One Nutrien commonly publishes their view on what that capital intensity per unit of new Potash production is, and they peg it at about $2,500 to $3,000 a tonne. So if you run the same math, use current average operating costs, normal durations, you'll come to somewhere around $1,000 a tonne before you could incentivize new greenfields. And that takes us to everybody's favorite topic, which is BHP's Jansen project. They published some early estimates of what their capital intensity looks like and some timeframes from here to put potential production, might come to be. And we get, on those numbers, somewhere around $800 a tonne before that greenfield incentive -- that project would be incentivized at a greenfield basis. I think there's quite a lot of skepticism about their capital number, quite frankly, but we'll take it at face value right now. The other thing, though, is that I do believe that Jansen is coming, and that's because a lot of that capital has already been sunk. So just for fun, we just ignored that multiple billions of dollars have already been spent, putting shafts in place. And in essence, what that does is it makes Jansen look like a brownfield project. And for us, to go-forward investment case decision, ignoring what's been spent to date. So thinking more strategically, I guess, you get to around $400 a tonne by our math to incentivize that decision. So I think it's odds on that it happens, but doesn't matter. The truth is that the earliest that Jansen could come on, and this is the stretch as well over the next, say, 4 to 6 years, at planned capacities of 4 million tonnes, the market will have grown by 7 million, 10 million tonnes already. So it doesn't even matter anymore. The key is would it happen again? Would somebody invest in a new greenfield project right now? Would BHP invest in a greenfields project right now if they knew what they were facing when they started? The answer is probably not. I think for the foreseeable future, for the most part, in Saskatchewan, future production growth will come from brownfields expansions. And guess what? We're really well positioned for that. Just -- I won't belabor this, but this just shows those timeframes that I'm talking about, which goes into that incentive price calculation that we've gone through. So it shows the start points for each of the mines that were expanded within our portfolio when they were completed. The average was 7 years. And below, you can see what the incremental output gain was relative to the capital costs. Tough business. Long lead times. Heavy capital intensity. It also shows you that price spike. And of course, that was where the incentivization came in. What happened there was they didn't have enough capacity on hand when a demand surge came and prices got out of control, build more capacity. They might be criticized because that all didn't come to market right away. But it was never intended to. In Potash, you have to build in anticipation of demand growth. You have to build in advance. Otherwise, these price spikes will happen. You will incentivize nonincumbents. And so it's a tricky game to balance. But we love the assets we're positioned with and the operators that we're positioned with. To the earlier point of what incentivizes expansion, obviously, one is price, but you've got to also have the resources. And in the case of our Potash holdings, the vastness of the resources is a bit mind-boggling, quite frankly. There are hundreds to thousands of years of resource ability or resource lives if you ran at current production rates. But that's also another way of saying that there is room for multiple phases of future expansion and still very long resource lives going forward. And lastly, this is a bit longer term in terms of the thinking and vision, but we hold additional freehold rights as there will be the yellow blocks. So the purple would be the current mine unitization areas in Saskatchewan. The yellow blocks would be the additional freehold Potash rights that we hold. So there's a lot of room in the future as the expansions take place for more and more mineral rights that we hold to be captured within these mine plans. We've done some internal numbers somewhere -- just looking at the typical math of the units -- the width of the Potash deposit in Saskatchewan. It's probably about 1.5 billion tonnes of Potash sitting on that land, and some percentage of that would be presumably recoverable. But that's -- anyway, it's longer term. Key point is that we were covered for pretty much the future of Potash in Saskatchewan. Moving on from there and bring us now to metals. We see, we're going to pick up some time here. So I will be a bit zippy here. I'll start with Chapada. Chapada is a stream that we hold in Brazil. We bought it in 2016. And what the chart on the left shows is its cost position. It's one of the lowest cost copper mines in South America. When we bought this stream in 2016, one of the things that really drew us was we felt that there was incredible resource expansion potential. We saw so much on the exploration side and even near-mine potential growth. And that's really played out since we made the acquisition. When we started, things were -- I think there was beyond 2020, there would have been about 7 years of resource life. And that's grown, I don't know, somewhere close to 20. The chart we've got here right now actually was meant to be updated, but it didn't make the list. But the one you'll see on the website will have much better and cleaner data, so please refer to that one instead. The bottom line here is that the project has also since gone from the hands of a gold-focused operator to now a base metal-focused operator in Lundin Mining. They have been very busy 60,000-meter drilling program underway right now trying to define further near-mine resources as they consider future expansion at the operation. From an acquisition in 2016 at $2 copper and a fairly constrained, at the time, gold mining company to changing hands to a growth-focused copper miner and having all this resource play out, we're obviously really happy with our Chapada acquisition. Its current yield against purchase prices, is really, really good. Voisey's Bay. Sticking to this topic of potential growth, Voisey's Bay has produced about 39 million tonnes of ore to date. There's currently an underground mine being developed. The plan is to extract about 32 more million tonnes out to about 2034. But that's still only a small part of the -- what would have been the early indicated total resource sizes at that operation. And that's just a function of the various cutoff grades and how they've shifted over time in influencing what's been reserved. So the point here is that, that original resource of 39 mine, 32 planned, well, that's within the 142 that Inco would have talked about back in 2001. That hasn't gone anywhere. And then we think it's possible that in the future, there's economic parameters and cut off grades. Some capital elements get factored in that at least some component that comes back in and results in an extended mine life beyond what's currently out there. And the other thing we'd point out is that it's very early days on the exploration front at Voisey's Bay. The current mine plan has the mine going down to, it's around 900 meters. That would compare to, say, 3,000 meters in a Sudbury-type camp. So once that underground is established, it creates a platform for that kind of future exploration. And I do think that Voisey's Bay has got a very long life ahead of it. Excelsior Mining. That is actually the first royalty to come out of our Project Generation business. So what happened there was there was an investment made that was kind of a hybrid investment, partially equity, partially royalty. And yes, again, it's part of our PG strategy. The equity part of that investment, we've gained enough on that or we've monetized enough, in fact, on that such that the royalty part is free. So Excelsior's plan -- it's an in situ copper mine. It's not your traditional concentrate mine, has a ramp-up plan of starting with 25 million pounds a year in Stage 1, but ramping up ultimately to 125 million pounds per year. They're currently in Stage 1. They have produced copper, but there are some obvious teething pains. And they recently pushed back the targeted timeframe or, I guess, the targeted timeframe range for reaching that Stage 1 capacity from later this year to some point into next year and have also recently raised equity capital to help fund that work to try to sort out the teething issues and get things up to capacity. But to the extent that they are ultimately successful, there's quite a lot of runway for growth for us in terms of the now free royalty that we hold on the asset. Curipamba. So this is a royalty that we acquired from Resource Capital Funds a few years ago. We were already a big investor in Adventus Mining who had just bought the project, and RCF held a residual royalty. So this will be another one, I think, that our internal sense of value probably is quite a bit higher than we're -- it's mostly considered right now. But obviously, I accept the fact that it still hasn't published a formal feasibility study. That's to come later this year. So based on PEA economics, the numbers look really, really good. It's pretty light CapEx relative to net present value and IRR, and that would have been done at much lower prices than current. But this is a project we have very high hopes for, particularly at -- we were 2 in the cycle overall, super high grade, open pitable copper project. And yes, there should be lots of good news or lots of news coming out from this project over the course of the year as the feasibility study advances. Lithium Royalty Corporation. This is -- it's actually been a really neat investment for us. It's something -- lithium is a relatively small market commodity at -- still at this point even. But I think most people understand with the electrification of transportation that it could have a much more significant role in the world of metals and mining. And we chose to position ourselves, if you will, through a strategic investment in a private company that we felt was run by people that do a more focused and effective job than we could ourselves. It since acquired 5 assets. One is already cash flowing. I think there's 3 more within the portfolio that have a real shot at becoming cash flowing in the current market cycle. Sigma's project, for example, has just been fully funded. The other thing that's gone on recently there is that Riverstone Holdings, a private equity group, has recently bought into the company. And based upon their valuation, the price that they paid to buy in, it assigns a value to the company of around USD 137 million or against our 12%, 12.5% ownership means it's worth about USD 17.5 million to Altius. And that doesn't include direct participation rates that we have to buy into the royalties that LRC buys on a 10% basis that we've exercised in the case of Neo Lithium and Sigma. A really neat story. I love how these guys are prosecuting the business, and it's been real fun to be part of and, in fact, to learn from. Renewable energy, Altius Renewable Royalties. There's been lots of talk and information provided on ARR over the past couple of months, largely because it just went through an initial public offering. So I don't know if there's a whole lot I can add here as it relates to Altius' growth that hasn't been said. We won't talk a lot about ARR in this presentation. I will say, though, that in less than 2 years, this is a business that has built up its royalty exposure to over 1,800 megawatts, which is a big number. As far as growth from here, like what I think about when I think about ARR is just how much growth overall is underway within the renewable energy sector more broadly. And I also believe that by being the first mover in bringing royalty finance to the renewable energy space and to see that adoption start to take hold that there's a lot of runway here. I can't define it the way I would around potential resource growth on a particular mine asset. But just there's a lot of potential growth here if execution continues at the pace that it's at. And we do have a lot of high hopes for this investment platform. What it has achieved in a very short period of time is it's become a full replacement for the part of our business in electrical generation that was based on coal. And beyond that, if you want to talk about big-picture optionality and resource lives, well, these are royalties on assets in which the resource never runs out. So this map here basically shows the projects across the U.S. that we have gained exposure to through our 2 deals with different developers. This developer approach really will result in ARR building up a nicely diversified portfolio of royalties diversified by technology, by region and by counterparties. And I think it's the kind of thing that overall should have real value as things mature. Last component of the presentation is our Project Generation business, last, but not least. Let me get my materials together here. And what we do through our Project Generation business and what we've done since we started Altius is we basically put together mineral projects and ideas. And we vend them on to others while we retain minority interests, equity positions in the buying company and always royalty interest. So we see this now as part as how we -- the business that we use to grow our ultimate long-term pipeline of new royalties. We get asked -- we have been asked a lot less so recently, about does this really matter to what you do anymore? So I mean you've got this portfolio of cash flowing royalties. And is this a distraction, or worse, is it like -- is it a drain on revenues coming from the cash flowing part of the royalty business? And my answer is pretty much always the same. This is ultimately the golden goose. Not only is it building up pipeline royalties like Kami, for example, we heard about earlier, the Curipamba royalty, the Gunnison royalty. It's doing it profitably. So it's not a drain. It's not a distraction. It's building a pipeline of royalties while more than self-sustaining itself. And I'll go even further. When I think back to the last cycle when we made all the profits in this business. That was the cash base that allowed us to make many of the acquisitions of the cash flowing royalties that we made. So again, those are -- those were the eggs and the PG business has been the goose. So it ain't going anywhere. We've been publishing for a while now sort of the quarterly value of the public equity holdings within our Project Generation business, but not necessarily the real finer details. This is an internal part of our group. But we do manage it as if it were independent just from a discipline point of view and comparing ourselves to more pure private and publicly-traded exploration and Project Generation businesses. So at the beginning of the -- at the bottom of the cycle, we would have had about $22 million in equity. So if you consider that sort of as the seed funding for the business for the next 5 years because, again, this business is not -- is meant to fund itself through its own activities and using its own resources. It's not just how much money do we allocate from royalty revenue every year to funding our exploration business. We don't think about it like that at all. The net result is that if you factor in everything, including G&A components within our overall business that come from PG, net investments we've made, obviously monetizations along the way, that $22 million has grown by $60 million over the 5-year period. And again, I think that -- as far as exploration business goes, things are really just -- and junior sector, things are really just getting going. But another way to think about it is that 61 royalties have been created over that period of time. And not only has there not been a cost but profits -- profit, if you include unmonetized market value of equities that we've built up of $60 million. And again, another way of looking at it again is to say that 61 million -- 61 new royalties have been created for a negative cost of about $60 million. And again, I think the starting gun has really just gone off. So this chart on the left shows exploration expenditures over time, going back quite a ways here, 2016 being a bottom, a little bit of a move up through the period of time that we just described the last 5 years since the most recent bottom. But here's where you've got to look because the leading indicator is how is capital coming back to the sector. This would be the public market. It doesn't even factor in the increasing budgets that we're starting to see come down from the producers. One interesting fun fact is that more money was raised in Q1 this year than all of 2020, and I think a lot of people in the sector would say that 2020 was probably pretty good as well. So as a leading indicator, there is so much exploration about to take place, again, after a long hiatus. How that translates across our portfolio? We have coming up in 2021 estimated 225 kilometers of drilling exposure, free option value coming across our portfolio, whether it relates to exploration or Project Generation business or equities or at the royalty level. It's a lot of free bets. I keep a track of a portfolio of the different holdings that we have and so, of course, I get news alerts every time they put out news. And every morning when I open up the computer right now, it's -- the thing is just filled up with news releases from juniors that we have exposure to. It's fun. This one, there's a lot of things we can talk about in terms of our Project Generation business and a lot of things to look out for that maybe people aren't thinking about or don't know enough about. And to be honest with you, we just don't have time here today to go through them. There are plans, near-term plans to maybe host a bit of a conference, if you will, to highlight some of the junior companies that we're invested in and to give people a better opportunity to really drill into our -- what we built up in our Project Generation business. But I did want to highlight one project, and that is -- it's a royalty interest that we hold on a gold project in Nevada. And that's another point to make here. We're thought of not as a gold company. But in our Project Generation business, actually a lot, if not most, of what we do is focused around gold. In case you were worried that you didn't have precious metals exposure with Altius, I'm here to tell you different. Anyway, silicon is a royalty. It's a project that was originally acquired by Renaissance using grub staking that provided a royalty to Cullinan Mines, which obviously are ultimately merged with Altius. So we ended up with a grub stake 1.5% royalty on this project. Renaissance optioned it on to Anglo Gold Ashanti. And they haven't said a lot, but they are extremely busy. They've called it an interesting deposit and the base of Anglo's expanding presence in North America. I mean the rumors in the region are gone silly at this point about what they've actually come up with. Again, they haven't said very much. What we do know is that right at the Southern boundary of the project, I mean, literally right at the boundary, Corvus Gold has been drilling a project called Lynnda Strip. And there, they've defined about a 700-meter wide section of pretty good grade and thickness oxidized gold mineralization. Again, I don't know about a 700-meter wide section. And on this map here, you can see a bunch of drill holes to the North. So that's what's called Merlin on the map. Those are holes that Anglo has drilled recently along the presumed extent of that zone that Corvus has been talking about. This is a big footprint. And that really was -- well, maybe it's the main one now, but it was the secondary target to the silicon project. And all of the little orange dots you can see there were new hole applications, some 90-odd holes that Anglo applied for planning permission around last year to drill. I mean it's, again, a big footprint, tight pattern drilling. This is the third drilling program there. So I won't even dare talk about what the rumors are saying in terms of what might be had. But keep your eyes and ears open for about -- for news on the silicon project. This could be something pretty meaningful for us. The next slides consider them takeaway slides. We won't go through them. So it was meant if we had time in the presentation to go through individual stories. We could start to talk about them, but you can follow it. And again, hopefully, we'll have a better showcase for our individual holdings within our PG business as we go forward. And Chad and Lawrence, I should add, are both on the call today. So if there are specific questions about individual stories that you want dealt with more imminently, feel free by all means. But again, I'm sorry I just don't have the time to take us through all of these individual names. So with that, I think I will say that, that's the end of the formal part of the presentation describing what I believe to be many, many forms of potential, very low-cost option value that sit within Altius and that at this point in the market cycle could really become unleashed and start to demonstrate value for our shareholders. Beyond that, I will open up the floor for questions. Thank you very much.

[Operator Instructions] And you have a question from Adrian Day of Adrian Day Asset.

But I guess the first question I would have goes back to your beginning about the cycle. And I appreciate that you've been very contrarian, which is essential. Are there any areas, any resources in general that you think are still attractive for buying? Or do you think, in a general sense, we're past that phase?

There are -- it depends on what you're talking about. Are we talking about more development stage stories where we can find other ways, where our abilities might bring down the relative cost of competing capital? Well, in that case, we'd love to find more copper exposure, nickel exposure and all of these sorts of things. But the bottom line is that things move in tandem to a large degree. You could have a situation where gold prices make the cost of capital for copper mines less expensive and those sorts of things. That's what I see more so. It's not just because the price that we'd have to plug in to feel like it was a mid-cycle or below. It has much more to do with the trend and the sentiment shifts that are underway that make us feel like our bets are largely in, that we've done our work for this cycle on the M&A side, with the exception of more special situations and development stage stories. That's always -- that always can provide unique opportunity. But in terms of like a big cash-flowing, well-understood asset, that really is just who wants to insert the highest price into the model to win the day. We're not going to win those across the board, quite frankly.

Okay. Okay. I had a couple of other questions, but I'll let other people ask if they have them.

Fire away, Adrian.

Okay. Well, the second thing was debt. Obviously, you've got a very strong balance sheet. Obviously, you've got cash flow. But I just wondered how you view debt at the moment because in your early days, you were extremely debt averse, and you've carried some debt for a while now. I just wonder how you view that.

We're pretty lightly levered at the moment. I mean I think we'd be sub-2s as far as a debt-to-EBITDA ratio. But generally speaking, it remains a priority for us to continue to reduce it when we think about capital allocation. I don't know if we're going to be maniacal about taking it to 0 just because it doesn't threaten us in any kind of real way at this point. So it's still a priority for reduction just because, well, we're at that part of the cycle where we use leverage to buy when things were more opportune. And sort of simple minds thinking here that when the cash flow kicks in from the better part of the cycle, you reduce your debt and you start to go long cash and you get ready for the next one. But it doesn't worry us at all at this level here, but it will keep coming down steadily.

Your next question is from Carey MacRury of Canaccord Genuity.

Can you comment maybe on the Fairfax relationship? I think you can buy back those preferred securities next year. Is that something you would consider? Or -- and if you did, how would that -- what would you have to pay for that?

We'd buy them back at face value, basically. But to be honest with you, like if there was an option today, say, between more to Adrian's question, if we were to go and use it and apply it to debt or to the preferreds, it would be debt for sure. That's like money that it's in 5% interest rate, tax is deductible, so the actual cost is considerably lower. And it has no -- essentially no maturity. It has a maturity, but it's like 80 years out from now. So I look at it as practically permanent capital within our structure or it could represent permanent capital within our structure for a very long time. It's really attractive. And again, the investments that we used that -- we made with that capital have got long durations. We used it partly to buy back the remainder of the Liberty's part of the Potash portfolio. And it was a big chunk of what we used to build up our position in Labrador iron ore. So funny enough, we've actually found assets to match with its duration. It doesn't -- we never worry about that capital there. Be nearly the last thing [ we'd allocate ] right now.

Okay. That's clear. And then maybe just on the Potash side. I mean obviously, as you mentioned, most commodities have ripped here. But Potash in the cycle, prices is still pretty low, relatively low. Is there opportunities to add more there? And is that something you'd consider?

We would in Saskatchewan, I think, but it's -- there isn't much. The other -- what's available, I mean, you'd be speculating on new project developments. And we've already got things covered as far as any expansions outside of the current areas. We are looking at projects in other parts of the world. But typically, where we've been looking at those, it has to do more with more specialized products rather than just straight up MOPs, so some more of the sort of crop-sensitive stream or the types of product and whatnot we've been looking at. But look, I think we have royalties on -- there's no way to beat what we have is the reality. We have royalties under very best Potash mines and deposits in the world. And they will be for a very long...

I guess what I meant is there -- can you increase your unitization rate in regard to other holders of the same royalties?

No. Essentially, what's left out there amongst the other unitholders, for the most part, those are lands that are controlled by the operators themselves. And I'm sure they are not in any move to sell any. We mopped up bits and pieces. I think people might remember a deal we did with a company called McChip a few years ago, which increased our Rocanville Holdings. So yes, if there's anyone we haven't approached that's out there that has any of that stuff, please give us a call. It's -- we've mopped up what's available.

Your next question is from Brian MacArthur of Raymond James.

Just following up on the Potash thing. And as you commented, it maybe not appreciated how good it is. But just a technical question on the price realization, and I appreciate there's a lot of detail in the slide on 31. But do you get -- I mean pharma products, say, Rocanville sells to the Chinese contract with [ AXA ], yet it sell some other stuff to the U.S. Midwest. There's different prices. There's different transportation. What is it actually -- like what's the price? Do you get right into the form of the molecule, if I think it that way? Because you can get into a situation where the Chinese contract price is very different, and it could be quite different. How does that actually work given the potential differential between those 2 prices going forward?

Well, our royalty is essentially the, let's call it, the crown royalty rate. That's what defines the 3%. And that is the mine gate. So it's whatever the product is worth at the gate of the mine in Saskatchewan. So there is -- there can be a difference between the realized price. There is a difference between the realized price and the mine gate price, and that will vary depending on where production in any one period finds itself. If it were all in the most distant market, well, there's dynamics in every market. But basically, what you do is you take the product mix, whatever is sold locally in North America, whatever is sold offshore through Canpotex, and you net off the transport logistic costs. And it won't be perfect. Because, again, if more gets sold export and there's a prevailing contract export price that's lower than spot, well, then it will be lower. Alternatively, in a year that the contract price is higher than spot, and more sells offshore, it will be higher. So I can't -- like there's no way to really -- unless you got right into the -- right into the order book of the operators, knew exactly what percentage was going into the market and how shipping contracts might have changed, what was the backlog at Panama yesterday. It's not that easy, but you do see a pretty good correlation. And what we tend to do is use the Midwestern price as a proxy, and then there's a bit of a discount for whatever the average transport cost would be into that market. There's lags, and they're going to be pronounced when things move quickly, right? When you get a big price move, one way or the other, it will be more pronounced. But we've been tracking this now since 2014, and there's a pretty good correlation if you think about -- and Corn Belt is a good proxy because it's the closest market. There are less of those variables than any of the others. Well, essentially, look, it's worth it's worth at the mine gate. And then depending on how it's sold, there, Canpotex sells net, so they get the net price. And Midwest product sales deliver the price. All of those things factor in. The producers do a good job as well publishing their realized prices. There can be some differences in how that crown royalty rate is calculated. And the other comfort, I guess, we have in all of this is that the same formula that gets used for us is the one that is used to pay the government royalties. So we've got some good friends on the audit side to make sure things are good. Use the Midwest as a proxy for some lags and you're going to be good.

Okay. That's very helpful. But it is a mine gate so if like [indiscernible] sent it all to China, for some reason, which you don't control. But you get a mine gate China's net transportation sale. And then, say, [indiscernible] sent stuff to Midwest. And I'm not saying they would do that. But it is actually calculated on a mine-by-mine basis at the mine gate. So source does matter.

Source does matter. And we're not going to get that granular. I think everyone will -- because of the time. But don't forget as well that within the mines themselves, there's even variation of the product right? You might have different blends and mixtures getting made that sell at slightly higher or lower. Is it standard? Is it granular? So there's -- yes, it's -- there's a lot of calculations that go into making sure our Potash royalties are right. But the operators do a good job. And we're really -- does not work to bring cells to deviate too far from just thinking about, say, Midwest or Brazil as a proxy and keeping an eye on any shifts that the operators are talking about maybe in terms of destination, percentage of sales in different markets, those sorts of things.

That's very helpful. And I do appreciate the additional disclosure on that.

I know everyone does. We get that question so much.

And we have no further audio questions.

Say I will point out again then that I feel like we had a gloss over some pretty neat stuff, particularly within the Project Generation business. But the group there is working with the companies that we're involved with around doing something more focused on the Project Generation business. And for us, it's an opportunity to hopefully be a bit of a value-add to those groups and to help showcase what it is that you're doing and why it is that we're so excited to be working with them. So if there's no additional questions that have come in, operator? Flora, do you have anything on the e-mail or anything here? Flora, are you with me?

I bet she's got that mute button on.

Okay. Well, operator, if you have no further questions, I will thank everybody for taking 2 hours of your day and spending it with us. Hopefully, it was helpful and useful. And if there are any more follow-up questions that come from going through the deck in more detail or from anything that was said today, we'd be much -- we'll be very happy to address those. The whole team is available to go through any of the individual parts that you think you'd like more color on. And finally, I would like to give a big shout out to the team who worked very hard on putting some of this material together. The presentation became known as the beast -- as the week -- the last couple of weeks went on. But it's actually been useful and helpful for us as well. And finally, again, thank you to David Cataford for joining us today. I found that talk to be so fascinating. And I'm so excited to be involved with the Labrador Trough and to be involved with Champion going forward. What a great, great company. Anyway, thank you everybody.

Thank you. This does conclude today's conference call. You may now disconnect.