Ecora Resources 1H 2024 Results: Strong Growth, Discounted Value

Ecora Resources PLC (LSE/TSX: ECOR) issued its half year operational update today that saw royalty income rise 15% for the first half of 2024 compared to the same period in 2023 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.

Below is a video summary of the half year results…

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 rerating of the current 50% discount to peers and 60% discount to NAV.

Royalty volumes are still on track to rise in 2024 before ramping rapidly in 2025 and beyond.

Earnings growth of 50% is expected over the next five years, driven by exposure to future facing commodities such as nickel, copper, cobalt, rare earths and uranium.

Ecora investor’s have multiple ways to generate market beating returns:

• Stock appreciation driven by rising earnings
• Stock appreciation through a multiple rerating
• A rising return of capital to shareholders through dividends and buyback

Medium Term Royalty Outlook

Ecora trades at a deeply discounted coal royalty multiple but will soon be a battery metals royalty company, offering significant rerating potential for current investors.

Ecora at a 40-60% NAV Discount to Peers

Even if the multiple stays where it is, the stock could still double given management is expecting a doubling of EBITDA by 2027.

Upside With or Without Multiple Expansion

Half Year Portfolio Commentary

Asset Review:

• Total portfolio contribution in H1 2024 of $51.3 million (H1 2023: $44.5 million) with royalty and metal stream related revenue in H1 2024 of $49.5 million (H1 2023: $42.7 million)
• Adjusted earnings per share in H1 2024 of 10.38c (H1 2023: 9.06c)
• Profit before tax in H1 2024 of $17.9 million (H1 2023: loss $10.2 million)
• Net debt at 30 June 2024 of $86.0 million (31 December 2023: $74.6 million), representing leverage of 1.43x
• The Group amended and extended its $150 million revolving credit facility, securing more favourable terms and providing greater flexibility
• Half year dividend of 1.70 cents per share, equating to 33% of free cash flow, and towards the upper end of our stated 25-35% payout range, to be paid in January 2025
• Proceeds of CA$11.1million ($8.1 million) from sale of shares in Labrador Iron Ore Royalty Corporation (“LIORC”) implying a total return on investment of ~110% (inclusive of dividends), with proceeds deployed into the Group’s share buyback program in Q2 2024

HY 2024 Financial Table

Portfolio Highlights

• Strong performance from Kestrel steelmaking coal royalty delivering volumes from private royalty area in H1 at the top end of full year volume guidance; no material volumes expected in H2 2024
• Four deliveries of cobalt were received in H1 under the Voisey’s Bay stream (each delivery is 20 tonnes of which 70% is attributable to the Group). With the Voisey’s Bay Mine Expansion Project construction phase nearing completion, production volumes are expected to ramp-up with between 8 and 12 cobalt lot deliveries expected in the second half of 2024
• Year-on-year production volume growth expected in 2024 and through 2025 at operations underlying the Group’s royalty portfolio

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.

See our analysis of the deal:

• 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.
• On 31 July, Capstone Copper Corp. (“Capstone”) published an updated Feasibility Study for the Santo Domingo project which reiterated its robust economics as a low-cost operation with expected cash costs of $0.33 per payable pound of copper over its 19 year mine-life

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.