Freehold Royalties Ltd T.FRU

RBC

[retiredcf]

September 13, 2023

Freehold Royalties Ltd. Sales Desk Presentation Highlights

TSX: FRU | CAD 14.84 | Outperform | Price Target CAD 19.00

Sentiment: Neutral

We hosted David Spyker (CEO), Rob King (COO), and Matt Donohue (Manager Investor Relations & Capital Markets) for a sales desk presentation. See below for additional details:

Details:

Canadian production profile has stabilized, no longer reliant on M&A. Freehold's Canadian portfolio has remained in the 9,500-10,000 boe/d range with M&A no longer required to backfill production declines. Alongside a slower M&A market, leasing activity has increased with over 100 leases to date in 2023 (previous record at 102 in 2018); management noted roughly half of the leases are in SE SK with another 25% in the Mannville. Looking ahead, both the SE SK and Mannville are poised to be key growth drivers, alongside the Clearwater and Deep Basin.

US the key driver of growth. The US portfolio is expected to exhibit higher rates of organic growth relative to Canada; management expects US organic growth will trend in the 2-3% range. Management is focused on annual growth figures rather than quarterly given drilling programs tend to be batched, which leads to shorter-term variability. M&A will remain part of the longer-term strategy with management noting a willingness to look outside the Permian and Eagle Ford.

M&A remains on the table, though quality and returns at the forefront. Management continues to actively evaluate M&A opportunities, citing a $1B run-rate in quarterly evaluations through H1/23. The company continues to prioritize asset quality, sustainability, and long-term returns. Additionally, management noted an expectation for oil-weighted assets to be the primary near-term focus with the team evaluating core regions (i.e. Permian, Eagle Ford) and selectively evaluating other basins (North Dakota Bakken, Mid-Continent).

Alternative minerals a focus medium- to long-term. Freehold has evaluated alternative mineral opportunities for roughly a year and a half, though management has shifted its focus towards industrial minerals. Freehold currently holds potash via mineral title acreage and noted that the team has evaluated helium and sand opportunities. The team also flagged soda ash as a key opportunity for the division, which is similar to potash with many different commercial applications. The team hopes to allocate US$30-$50 million to the space in the coming year, though viability and time to cash flow generation are key considerations. Over the next five years, management noted that this could account for up to 20% of corporate revenues with no link to oil & gas commodity price volatility.