Ecora Resources PLC (LSE/TSX: ECOR) issued a trading update for the 2nd quarter of 2024 that saw royalty income up 63% quarter over quarter as the wind down of coal royalties continued to pay off with significant free cashflow. 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 running at the top end of guidance for 2024, up 28% over 2023 in 1H24 vs 15%-25% guidance from management for the full year.
- Cobalt royalties expected to increase significantly in the second half of 2024. 8-12 deliveries vs only 4 in 1H24. 40 deliveries per year expected at full ramp up, starting in 2026.
- 2023 marked the bottom for earnings with growth expected for the rest of 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 55% discount to peers and 60% discount to NAV.
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 a significant discount to royalty peers offering both upside from rising cashflow as well as from a rerating of the stock multiple as coal royalties fall away and the company is rated in line with battery metal commodity peers.
Ecora (White) at >50% EV/EBITDA multiple discount, but leading FCF Generation in 2025
Second Quarter 2024 Portfolio Commentary
Asset Review:
- US$31.8 million portfolio contribution for Q2 2024, up 63% on Q1 2024 due to higher than expected saleable production volumes in the Group’s private royalty area at Kestrel, with the rest of the portfolio performing in line with expectations.
- US$51.3 million portfolio contribution for H1 2024 (H1 2023: US$44.5 million) driven mainly by sales volumes at Kestrel of 2.0Mt, at the top end of guidance for FY 2024.
- Q2 2024 saleable production volumes within the Group’s private royalty area at Kestrel totalled 1.3Mt, generating royalty income of US$26.3 million.
- Two cobalt deliveries from Voisey’s Bay were received during the period, at an average realised sales price of US$16/lb, taking the number of deliveries received in H1 to four:
- FY guidance remains unchanged at 12-16 deliveries of cobalt (each delivery being a 20t lot of which 70% is attributable to the Group)
- Vale has provided guidance that underground production at Voisey’s Bay has started to ramp up and is expected to reach steady state production levels in 2026, at which point Ecora expects to receive c. 40 deliveries of cobalt per annum on a life-of-mine average basis
- Final investment decision (‘FID’) to construct the Piauí project by Brazilian Nickel is not expected before 2025, which would trigger the Group’s right, but not obligation, to invest a further US$62.5 million to part fund the construction of the project. This investment would increase the royalty rate from 1.60% to 4.25%.
- The Group continues to expect year-on-year production volume growth at operations underlying its producing royalty portfolio in 2024 and 2025.
- Realised CA$11 million from selling down a portion of its Labrador Iron Ore Royalty Corporation investment; Ecora now holds a total of 57,390 shares.
- Completed the US$10 million share buyback acquiring a total of 9,491,317 ordinary shares at a volume weighted price of approximately 83.77 pence per share.
- Net debt as at 30 June of US$86 million; expected to reduce meaningfully in the next 18 months (absent acquisitions, assuming current commodity prices and operator volume guidance).
Q2 2024 Financial Table
(1) Excludes $5.4m of accrued income released to the income statement following the favourable Four Mile judgment announced on 4 December 2023.
Post-period end events
- On 1 July 2024, the Group announced the acquisition of a 0.85% Gross Revenue Royalty (GRR) over the Phalaborwa rare earths project located in South Africa, operated by Rainbow Rare Earths, for a cash consideration of US$8.5 million. This is one the highest quality rare earths projects globally and is expected to generate strong cashflows throughout the commodity cycle with production targeted to commence in 2027. Ecora also subscribed for US$1.5 million of shares in Rainbow Rare Earths.
- On 11 July 2024, 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.
- Capstone Copper is anticipated to release an updated feasibility study on the Santo Domingo copper project in the coming weeks. This is expected to provide an updated technical study and economics for the project along with a timeline to FID.
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.
