Ecora Resources PLC (LSE/TSX: ECOR) issued a trading update for the 3rd quarter of 2024 that saw royalty income up 15% YoY through the first 9 months of the 2024. Ecora continues to expect volume growth from the current portfolio in 24′ and 25′ plus future cashflow from an extensive pipeline of battery metals development projects.
Highlights:
- Coal royalties up 24% year over year through the first nine months and will be within guidance even with no meaningful deliveries expected in Q4.
- Cobalt royalties ramped up with four deliveries received in the quarter vs four in the entire first half of the year. Four to eight more deliveries expected in Q4 and up to 40 deliveries per year expected at full ramp up, starting in 2026.
- 2023 marked the bottom for earnings with growth expected through this decade.
Bottom Line:
Ecora is going through a rapid transformation from a coal royalty company to a battery metals royalty company. Coal will decline from 75% of income in 2023 to only 10% in three years, driving a likely rerating of the current 60% discount to peers and NAV.
Non-coal royalty volumes are still on track to increase in 2024 before ramping rapidly in 2025 and beyond. Earnings growth of at least 40% is expected over the next five years, driven by exposure to future facing commodities such as nickel, copper, cobalt, rare earths and uranium.
Medium Term Royalty Outlook
Ecora trades at such a deep discoint to net asset value that even currently producing royalties are not fully priced in. Investors who buy the stock now will own a basket of metals with strong future growth prospects at a more than 60% discount.
Ecora at 37% NAV discount to producing royalties and a 61% discount when including future growth.
Ecora trades at only 5.6x EBITDA while royalty peers are 1.7x-4.5x higher. The potential for a significant rerating is there, along with expected earnings and dividend growth.
Ecora (White) NTM EV/EBITDA vs Peers
Third Quarter 2024 Portfolio Commentary
Quarter Highlights:
- 15% increase in portfolio contribution for the nine months ended 30 September 2024 of US$56.8 million (2023: US$49.4 million)
- US$5.0 million of core portfolio contribution (ex-Kestrel) for Q3 2024 (Q3 2023: US$4.8 million; Q2 2024: US$5.5 million)
- In line with guidance, production at Kestrel was mainly outside of Ecora’s private royalty area in Q3 2024, with mining expected to return to Ecora’s royalty area in H1 2025
- Total portfolio contribution of US$5.2 million in Q3 2024 including Kestrel (Q3 2023: US$5.8 million; Q2 2024: US$31.8 million)
- Ramp up of underground mining activity at Voisey’s Bay accelerated resulting in the Group receiving four cobalt deliveries (each delivery is 20 tonnes of which 70% is attributable to the Group) during the period at an average realised sales price of $11.4/lb
- The average realised sales price for Q3 2024 reflects the weighting to standard grade product. Deliveries in Q4 2024 are expected to be primarily alloy grade product
- Whitehaven Coal announced the approval of the Narrabri Stage 3 project in accordance with the Environment Protection and Biodiversity Conservation Act. Subject to no further appeals, the approval triggers Ecora’s right to a total of US$5.0 million of staged contingent consideration1
Q3 2024 Results Table
Outlook
- Voisey’s Bay underground production to continue to ramp-up towards steady state levels in 2026
- 8-12 deliveries expected in H2 2024 (H1 2024: 4), FY 2024 guidance of 12-16 deliveries remains unchanged
- 20-28 deliveries expected in 2025
- Life of mine average of 40 deliveries per annum expected when fully ramped up
- Mantos Blancos copper production expected to be higher in Q4 2024 following scheduled maintenance during Q3 2024
- Business development activities primarily focused on growing the Group’s near-term income producing royalty portfolio
- Net debt expected to reduce meaningfully in the next 18 months at current commodity prices and operator production guidance, absent royalty acquisitions
Portfolio updates
- In September, Ecora completed the acquisition of a 0.85% Gross Revenue Royalty over the Phalaborwa rare earths project located in South Africa, operated by Rainbow Rare Earths (“Rainbow”), for a cash consideration of US$8.5 million
- In September, Rainbow announced a 15% increase in the Mineral Resource Estimate for Phalaborwa, taking the total resource tonnage to 35.0 Mt and increasing the project life by two years
- Capstone Copper released an updated Feasibility Study for the Santo Domingo project re-affirming the quality of the project as a low-cost operation with expected C1 cash costs of $0.33 per payable pound of copper over its 19-year mine life
- Largo Resources announced a 42% increase in production in Q3 2024 to 3,072 tonnes of V205, their highest quarterly production number in seven quarters – most of this is expected to be reported as sales subject to royalties in Q4 2024
- In July, BHP announced that it will temporarily suspend the construction of the West Musgrave project in October 2024, with the decision to be reviewed by February 2027
- Cyprium Metals closed a US$27.3 million offtake financing agreement with Glencore plc, with the proceeds in part funding early site works at the Nifty copper complex as well as Nifty mine restart feasibility studies. During the period, Cyprium also released an updated mine optimisation plan and is expected to release an updated Pre-Feasibility Study in Q4 2024
- Alta Copper announced an infill drilling campaign commencing in H1 2025 targeting high-grade mineralisation zones at Cañariaco Norte, accompanied by an exploration program in the nearby and highly prospective Cañariaco Sur and Quebrada Verde extensions (all of which are within Ecora’s royalty area). Alta Copper’s largest shareholder Fortescue Ltd. (34%) continued to support the project’s development via a C$2.5 million private placement during the period
About Ecora Resources
Ecora Resources is a leading royalty company focused on supporting the supply of commodities essential to creating a sustainable future.
Our vision is to be globally recognised as the royalty company of choice synonymous with commodities that support a sustainable future by continuing to grow and diversify our royalty portfolio in line with our strategy. We will achieve this through building a diversified portfolio of scale over high quality assets that drives low volatility earnings growth and shareholder returns.
The mining sector has an essential role to play in the energy transition, with commodities such as copper, nickel and cobalt – key materials for manufacturing batteries and electric vehicles. Copper also plays a critical role in our electricity grids. All these commodities are mined and there are not enough mines in operation today to supply the volume required to achieve the energy transition.
Our strategy is to acquire royalties and streams over low-cost operations and projects with strong management teams, in well-established mining jurisdictions. Our portfolio has been reweighted to provide material exposure to this commodity basket and we have successfully transitioned from acoal orientated royalty business in 2014 to one that by 2026 will be materially coal free and comprised of over 90% exposure to commodities that support a sustainable future. The fundamental demand outlook for these commodities over the next decade is very strong, which should significantly increase the value of our royalty portfolio.
Ecora’s shares are listed on the London and Toronto Stock Exchanges (ECOR) and trade on the OTCQX Best Market (OTCQX: ECRAF).
Ecora Resources is a market awareness client of Capital 10X. For more information, including potential conflicts of interest please see our Content Disclaimer.
Ecora Resources is a market awareness client of Capital 10X. For more information, including potential conflicts of interest please see our Content Disclaimer.
