Carbon Streaming Corporation
Q1 2024 Earnings Call Transcript

Published: 17 May 2024

[Operator:]

Good morning, ladies and gentlemen. Welcome to the Carbon Streaming Q1 2024 Financial Update Conference Call. [Operator Instructions] This call is being recorded on Friday, May 17, 2024. Please note that today's call may contain forward-looking statements, which involve assumptions that have inherent risks and uncertainties.

[Please refer to the advisories and cautionary notes provided in the company's news release and MD&A as well as the risk factors discussed in our annual information form. For more information, please review the company's regulatory filings available on SEDAR plus and on our website at www.carbonstreaming.com. Also, please note that the company uses non-IFRS measures in its reporting.:]

[Participants are encouraged to review the disclosure related to this non-IFRS measures in the company's MD&A. All dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted. I would now like to turn the conference over to Justin Cochrane, Founder, President and CEO of Carbon Streaming. Please go ahead.:]

[Justin Cochrane:]

Thank you very much, operator. And thanks, everyone, for attending Carbon Streaming's Q1 2024 Conference Call. I'm Justin Cochrane, the Founder and CEO of Carbon Streaming. And joining me on the call today is Conor Kearns, our CFO; Derek Sawkins, our Executive Vice President of Investments and Strategy; and Alec Kushnir, our Executive Vice President of Investments and Origination.

[As usual, Conor will speak to the company's financial results for the quarter, and Derek and Alec will provide updates on a number of our investments as there's been some exciting developments this quarter. But first, just a few opening remarks from me. During the quarter, we continued our corporate restructuring initiatives to reduce costs and move the company towards profitability as quickly as possible.:]

[We generated approximately USD 500,000 in net cash flow from carbon credit sales this quarter and reduced our adjusted net loss by 44% compared to the same quarter last year. We've also completed all of our restructuring efforts around each of our streaming and royalty investments, resulting in the amendment to restructuring of 5 of our investments over the last 12 to 18 months. And before I pass the call over to Conor, just a few notes on our Rimba Raya project, as we noted in our press release, we were informed in late April that the local concession holder, a company called PT Rimba Raya Conservation, had the Rimba Raya concession license revoked by Indonesia's Ministry of the Environment in Forestry, which we refer to as the MoEF.:]

[Carbon streaming sent a team to Indonesia. We've been liaising with our partner and advisers to confirm details and determine next steps to protect our investment in the Rimba Raya project and to enforce our legal and contractual rights. We are aware that PT Rimba Raya has disputed the revocation and has filed a claim against the MoEF with the state administrative court of Jakarta. A final ruling from that court is expected towards the end of June 2024.:]

[And that ruling would be subject to potential appeal by the parties. We will continue to provide updates to the market as we learn about new material developments. As you can imagine, it's a fluid situation, and we will update the market when we can. So now I will pass the call over to Conor Kearns, our CFO. Conor.:]

[Conor Kearns:]

Thank you, Justin, and thank you to everyone participating on today's call. For the quarter, we reported a net loss of $35.8 million. Please note that the vast majority of the company's net loss for the quarter included a $33.1 million loss on the revaluation of the company's carbon credit streaming and royalty agreements, primarily related to the company's Rimba Raya stream and fair value assumptions related to the write-down of the value of the Rimba Raya stream to neal.

[For the benefit of the listeners on this call, Carbon Streaming is required to perform fair value assessments on its streams and royalty agreements at each reporting period. In determining the fair value of its streams and royalties, the company incorporates both project-specific factors such as legal, regulatory, political and methodology risks and current voluntary carbon market conditions. For more information on the inputs used on our fair value calculation, please refer to the company's financial statements.:]

[Regarding the write-down of the Rimba Raya Stream, with the concession license revoked, the company has determined the fair value of the Rimba Raya stream to be neal as at March 31, 2024.:]

[Under the terms of the Rimba Raya stream, the delivery of carbon credits requires the concession license to be valid, in good standing and in compliance with Indonesian laws and regulations. The company will reevaluate the fair value of the Rimba Raya stream in the event there is a change in the facts and circumstances regarding the Rimba Raya project, the replication of the concession license and the Indonesian national carbon emission regulations.:]

[After adjusting for the fair value revaluation of our carbon credit streaming and royalty agreements, the revaluation of warrant liabilities and corporate restructuring expenses, the company's adjusted net loss was $1.6 million. This was a significant improvement to the adjusted net loss of $2.7 million for our 3 months ended March 31, 2023, and shows the continued success of our cash management practices and ongoing restructuring efforts to reduce corporate G&A expenses.:]

[The company's improved operating cash flow was primarily driven by reduced operating expenses and earned interest income during the period. Evidencing the success of the company's corporate restructuring and ongoing cost-cutting initiatives. Other operating expenses have decreased by $1.4 million in the current quarter compared to the comparable 3 months ended March 31, 2023.:]

[In the quarter, Carbon Streaming generated revenue from the sale of approximately 94,000 carbon credits. These credits were sold primarily from the company's Rimba Raya inventory and Will solutions Quebec's Sustainable Communities project, which we purchased outside of the stream agreement.:]

[Regarding our streams, the company continues to generate cash flow from streaming and royalty agreements with the company realizing cash flows from the Community Carbon stream and the Cerrado Biome stream during the quarter, which was a quarterly record of $400,000. In the quarter, we paid an upfront deposit for carbon credit streaming and royalty agreements of $400,000, which relates to the Nalgonda Rice Farm stream.:]

[As of March 31, 2024, the company had $49 million in cash on which the company earned $700,000 in interest income during the period and still has no corporate debt. Now I will pass it over to Derek Sawkins, to discuss our portfolio update.:]

[Derek Sawkins:]

Thanks, Conor. As we step into 2024, we're staying focused on getting the most value from our streaming assets. This means keeping a close eye on project performance and making sure our agreements are set up to give us the best returns with the least risk. We're really excited about the progress at several other projects, which are on track to start generating extra cash flows in the coming months.

[These include the Community Carbon Stream, the Waverly Biochar Stream, the Sustainable Community Stream, the [ NCO ] Biotest Stream and then Nalgonda Rice Farming Stream. Our aim is to keep growing and diversifying our portfolio with top-notch project developers and to become the go-to partner for buyers who want to support high-quality carbon projects. We believe that by sticking to this strategy, we can establish ourselves as an industry leader and a key source of carbon credits in the voluntary market.:]

[While changes to methodologies have been challenging, we've been successful in negotiating contract adjustments that reduce risks, support our project partners and improve returns. My colleague Alec Kushnir will share more about 2 of our recent restructuring successes shortly. But before I hand it over to him, I'd like to highlight our latest investment with Mast reforestation and to give you an update on a major milestone at our Enfield Biochar project.:]

[On February 9, 2024, we entered into our third carbon credit stream with Mast deforestation to help restore 523 acres of forest that were severely burned in the 2021 Dixie fire in California. This project is registered under the Climate Action [indiscernible] program and is expected to remove around 91,500 tons of CO2 equivalent, generating an equivalent number of carbon credits by 2026.:]

[Besides removing carbon, the project will support climate-resilient forests, improve soil quality strength in ecosystems and restore habitat for wildlife like black bears, coyotes, black-tailed deer and bald eagles. Located in the Lake Almanor watershed and intersecting with the Pacific Crest Trail, this reforestation will also reduce sedimentation, improve water quality and enhance the watershed hydrologic function.:]

[The land is protected under a perpetual conservation easement, which means it won't be developed, logged or subdivided. Mast will deliver 100% of the carbon credit to us in exchange for up to $1.6 million in funding as the project reaches key milestones and site preparation, planting and credit issuance. We'll also make ongoing payments to Mast for each carton credit sold to support continued stewardship.:]

[We're also happy to share that right after the end of the quarter, Standard Biocarbon reached a big milestone with the first biochar production from their new facility in Enfield Maine. The Enfield biochar project is gearing up for coal production while gathering data for a facility audit and official registration with the Puro.earth carbon credit standard.:]

[We expect to see the first credit issuance from this project in the fourth quarter of 2024. Now I'll turn it over to Alec Kushnir to talk about our successful restructuring efforts with the Community Carbon and Nalgonda Rice Farming projects.:]

[Alec Kushnir:]

Thank you, Derek. Good afternoon, everyone. On May 8, 2024, Carbon Streaming amended the terms of the Community Carbon stream, resulting in, among other things, revising our economic interest to provide for a tier streaming structure, which is adjusted a certain return on invested capital thresholds are achieved.

[Adjusting the portfolio composition and milestone payments to focus on 5 strongest projects 3 cookstove and 2 water purification projects. Under the amended stream Community Carbon will deploy at least 2.1 million cookstoves and water purification devices, prioritizing high FNRB regions, which are expected to generate approximately 30 million carbon credits. The amended milestone payments will also provide funding for digital monitoring, reporting and verification and other project quality improvement measures.:]

[We are excited to announce that on April 9, 2024, Community Carbon announced that it had secured a historic letter of authorization from the government of Tanzania for its Tanzania Cookstove Project. This authorization represents Tanzania's first-ever carbon credit authorization for corresponding adjustments under Article 6 of the Paris agreement. The project is expected to issue approximately 270,000 VCUs with corresponding adjustments in 2024 and generate an additional 800,000 VCUs, annually thereafter over the project life.:]

[We expect cookstove credits with corresponding adjustments under Article 6 to capture a premium over non corresponding adjustment cookstove credits. Moving on to the Nalgonda Rice Farming project. We are pleased to announce that the project has engaged carbon farming technology SAS, to conduct a pilot program, applying satellite and artificial intelligent back monitoring, reporting and verification technology for the 2 crop seasons in 2024.:]

[This MRV solution is expected to detect a large range of farming practices and quantify emissions with high accuracy, simplify operations, providing an efficient and cost-effective means of collecting near real-time data at scale, enabling close monitoring of project progress and increase the marketability and the value of the carbon credits issued. I'll turn it over to Justin for the closing remarks.:]

[Justin Cochrane:]

Yes. Thanks, Alec. As we look to the balance of 2024, our priority is still focused on the ramping up of carbon credit issuances and sales. Protecting our debt-free balance sheet and pursuing strategic initiatives while continuing to provide support to our project partners. We are seeing a material increase in demand and retirements of carbon credits compared to prior years, and we remain optimistic that this trend will continue. With that, operator, we are happy to open the line for questions.

[Operator:]

[Operator Instructions] And your first question comes from the line of Aaron MacNeil with TD Cowen.

[Aaron MacNeil:]

I know it makes reporting makes this challenging from a disclosure perspective. But can you give us a sense of the pricing and volume for that $406,000 of settlements from the Community Carbon stream and how that would compare to your projected economics and returns.

[Justin Cochrane:]

Yes. I mean I would say prices have -- we're averaging around kind of $5 to $6 per credit so far, Aaron, and that's -- it's in line with our stream economics when we set out, maybe a little bit below, but fairly consistent with our expectations.

[Aaron MacNeil:]

Got you. Can you give us a sense of how credit deliveries might trend over the balance of the year. In terms of total volumes, but any helpful nuance in terms of the streams as it relates to price, obviously, thinking differently about biochar versus removals or avoidance, et cetera?

[Justin Cochrane:]

Yes. I mean listen, biochar credits right now are selling well above $100 a credit. So obviously, a substantial difference to the pricing because the Community Carbon credits as an example. We are expecting first delivery of credit from our biochar projects, both biochar projects before the end of the year. We're also going to expect some material credit deliveries from both Community Carbon and from our sustainable community projects. So we are expecting some significant deliveries before the end of the year and hoping that we can sell those at attractive prices as well.

[And our ERA project, the Cerrado Biome project also has some deliveries as well. So yes, I think it's -- we are expecting some material deliveries before the end of the year. And again, pretty -- still pretty encouraged by the way the market is shaping up this year.:]

[Aaron MacNeil:]

Got you. And I know there's not a whole lot you can say, but as it relates to the strategic review, like where do you think you're at in the process? Like are you still early days? Are you getting close to the end

[Justin Cochrane:]

Yes. So that was -- yes, that was my comment on. I think we largely through the end of the restructuring initiatives, both from a corporate head count perspective and also from looking at our various streams and royalty agreements and those restructuring initiatives. So Aaron, I would characterize it as largely completed this at this point.

[Aaron MacNeil:]

Got it. Okay. And then last question, just the $18 million in commitments in the next 12 months, like what's sort of the timing of that? And what streams do they relate to?

[Justin Cochrane:]

So they largely relate to 2 streams, the Community Carbon stream and $6 million of that is related to MarVivo is our Magdalena Bay, Blue Carbon project in Mexico. That one is a bit binary just in terms of moving that project ahead through the government approval process. So that -- a big portion of that is somewhat binary and of course, only gets advanced when milestones are reached in the next milestone there is government approval and transfer of the license.

[The balance -- a lot of it is related to Community Carbon, and that goes through milestones of credit of cookstove deployments of credit issuance and deliveries. So important for listeners to understand that this -- that money is only committed as our projects are successfully developed or successfully move ahead.:]

[Operator:]

Thank you. And there are no further questions at this time. I would like to turn it back to Justin Cochrane for closing remarks.

[Justin Cochrane:]

Well, that's great. Thank you very much, operator. Thanks, everyone, for joining us on today's conference call. Again, as always, please feel free to reach out to us through the website. Through our investor e-mail address. There is some great information and resources on the website, and we'll be updating the investor presentation shortly as well.

[So thanks for your time, and look forward to chatting at the next conference call.:]

[Operator:]

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.