Half year results

BUSINESS REVIEW

Results

The Group delivered a strong financial performance in the first half of the year reporting a total portfolio contribution of $51.3 million (H1 23: $44.5 million). This was driven by the performance of Kestrel where saleable production from the Group's private royalty area during H1 was at the top end of full year guidance for 2024. There is no material contribution expected from Kestrel in H2 2024.

Cobalt prices have remained at cyclically low levels, with an H1 2024 average price received for the sale of Voisey's Bay cobalt of $16.0/lb (H1 2023: $16.5/lb). The majority of our cobalt deliveries are alloy grade and attract a premium versus the standard grade price which averaged $13.2/lb in the period. Historically, approximately 80% of the cobalt delivered under the Voisey's Bay stream has been to alloy grade specification, which currently realises a premium of approximately $4/lb to the FastMarkets Metal Bulletin standard grade price.

On 27 March, the Group announced an updated capital allocation framework, and in conjunction a $10 million share buyback programme. The capital allocation framework seeks to maintain balance sheet strength, while continuing to provide an attractive dividend yield relative to the royalty sector peers and retain the flexibility to allocate capital for further growth. The capital allocation framework also considers opportunistic share buybacks if the Group's shares are trading at a sizable discount to estimated net asset value.

This is the first period in which the Group will declare its dividend under the revised framework, with dividend distributions based on a percentage of average free cash flow across the previous two half year periods. Across H2 2023 and H1 2024 the average free cash flow totalled $12.7 million.  The Board has determined that the H1 2024 dividend will be 1.70 cents per share which equates to 33% of average free cash flow during the prior two half year periods and is towards the upper end of the stated 25-35% payout range.

On 1 July the Group announced the acquisition of a 0.85% Gross Revenue Royalty on the Phalaborwa Rare Earths Project in South Africa. The project is operated by Rainbow and in connection with the royalty acquisition, the Group subscribed for $1.5 million of ordinary shares in Rainbow on 28 June 2024.

In January, the Group announced that it had amended and extended its $150 million revolving credit facility agreement with its existing syndicate of Scotiabank, CIBC and RBC. The agreement includes an uncommitted accordion feature of up to $75 million to be used to fund royalty acquisitions which would take the borrowing capacity up to $225 million. There are no fixed amortisations or step downs associated with the facility and maturity has been extended to January 2027 at the earliest.

The Group ended the period 30 June 2024 with net debt of $86 million. This is expected to reduce meaningfully in the next 18 months (absent acquisitions, assuming current commodity prices and operator volume guidance) as the Group has no firm funding commitments beyond the payment on completion of the $8.5 million for the Phalaborwa royalty. Leverage at the end of June was 1.43x, well below the 3.5x permitted under the facility.

Adjusted earnings in the period increased to $26.6 million (H1 2023: $23.4 million) generating adjusted earnings per share of 10.38c (H1 2023: 9.06c).

Outlook

The second half of the year is expected to be weighted towards the Group's portfolio ex-Kestrel, with Kestrel operations moving outside the Group's royalty area before returning in H1 2025 at current mining rates. Based on H1 operating partner production levels, we continue to expect year-on-year underlying production volume growth across our royalty portfolio in 2024 and as well as 2025.

The Voisey's Bay underground mine expansion was 96% complete as of the end of Q2 2024, with the mining of the underground Reid Brook and Eastern Deeps deposits now ramping up such that the Group expects to receive eight to twelve deliveries of cobalt in H2 2024 and between 20 and 28 deliveries of cobalt in 2025. At life of mine average production levels, expected to be reached by the end of 2026, the Group will receive around 40 deliveries of cobalt per annum. 

At the start of H2 2024, mining activities at Kestrel have moved outside the Group's private royalty area and are expected to stay outside for the remainder of the year before returning in late Q1 2025. With Kestrel and Voisey's Bay volumes for 2025 expected to be higher than in 2024, the Group is well positioned to deliver a strong financial performance in 2025 (at constant commodity prices).

We were pleased to see Capstone publish an updated Feasibility Study for the Santo Domingo project which confirmed the robust economics of the project which could contribute approximately $30 million per annum (on analyst consensus volumes and pricing) to Ecora once it enters production. It was disappointing to see BHP temporarily suspend the construction of the West Musgrave nickel-copper project, but we are confident in the project's potential as a low-cost producer of nickel and copper.

A final investment decision by Brazilian Nickel on the Piauí project is not expected before 2025, which would trigger the right, but not obligation, to invest a further $62.5 million in the project to part fund construction capital costs.

We believe that the capital we have deployed in the past four years has given us the assets that will become the cornerstone of our portfolio well into the next decade and beyond. While our short-term focus is on high-quality acquisitions that are producing, or close to production, and from which we would have a clear path to de-leveraging, we will also look at earlier stage opportunities that are high quality but smaller ticket sizes, in line with our capital allocation framework which prioritises the maintenance of a strong balance sheet.

PORTFOLIO REVIEW

Producing Royalties

Voisey's Bay (Cobalt)

Attributable deliveries under the Voisey's Bay cobalt stream totalled 56 tonnes (H1 2023: 84 tonnes) during the period (four 20 tonne deliveries of which 70% is attributable to the Group), realising an average sales price of approximately $16.00/lb (H1 2023: $16.54/lb). 

Cobalt deliveries in Q2 were impacted by annual planned maintenance at the Long Harbour refinery. Between 8 and 12 deliveries are expected during H2 with one having been received, one at port and two due to be shipped imminently.

Kestrel (Steelmaking coal)

Production from Kestrel was within the Group's private royalty area for the majority of H1 2024 with saleable production volumes of 2.0Mt at the top end of FY 24 guidance (1.8-2.0 Mt). There are expected to be minimal volumes from the Group's private royalty area in H2 2024, leaving FY 24 guidance at c. 2.0 Mt.

Operations are expected to move back inside the Group's private royalty area during H1 2025 and overall volumes in the Group's royalty area in 2025 are currently anticipated to be higher than the 2.0 Mt guided to in 2024.

Mantos Blancos (Copper)

Total copper production of 21.0kt (H1 2023: 25.8kt) was lower than the operator guidance of 23- 28kt due to localised geotechnical issues impacting the mine sequence in Q2 which resulted in lower grades and recoveries.

Capstone is anticipating higher throughput rates in H2 following the final installation, commissioning and tie in of new tailings pumping infrastructure. During June mill ore throughput averaged 17ktpd, a monthly record, and the final tie in of the new infrastructure was completed in July with the ramp up to 20ktpd expected during Q3.

Other

Largo Inc. focused on reducing operating costs and improving productivity at the Maracas Menchen mine during H1 2024, to navigate a period of lower vanadium prices which reduced to $6.59/lb compared to $9.97/lb in H1 2023. V₂O₅ production was impacted in Q1 by unplanned kiln maintenance resulting in H1 2024 sales totalling 4,418 tonnes (H1 2023: 4,544 tonnes). Largo has reiterated full year production guidance of 9,000 -11,000 tonnes.

Throughput at the McClean Lake Mill increased by 16% as output from the Cigar Lake mine increased by 21% to 5.1Mlbs (H1 2023: 4.2Mlbs). Cameco's full year 2024 Cigar Lake production guidance remains 18Mlbs.

The Group sold down the majority of its equity holding in LIORC for proceeds of CA$11.1 million ($8.1 million). Ecora now holds a total of 57,390 shares.

Advanced Development Stage Royalties

Santo Domingo (Copper)

Capstone published an updated feasibility study for the fully permitted Santo Domingo project in Q3 2024. The updated Feasibility Study enhanced the mine's economics with low capital intensity and first quartile costs. Capstone is now focusing on optimising the financing structure of the project and in parallel will advance the detailed engineering of the project. Ecora owns a 2% Net Smelter Return ("NSR") royalty over part of the Santo Domingo project that covers the highest copper grade portion of the mine plan. In the initial six to seven years of production in the Group's royalty area, annual production is expected to be 106ktpa of copper and 4.7 Mtpa of by products (including gold and iron).

West Musgrave (Nickel-copper)

BHP announced in February 2024 that it was reviewing the plans for its Western Australia nickel operations, which include the West Musgrave nickel-copper project, at the same time it stated that on a standalone basis West Musgrave could still generate reasonable returns.  In July 2024, BHP announced that it would be temporarily suspending the construction of the West Musgrave project in October 2024 with the decision to be reviewed by February 2027.

Piauí (Nickel)

Brazilian Nickel has completed the detailed engineering studies that were incorporating the learnings from the small-scale plant with a view to optimising the flow sheet ahead of advancing financing discussions for the construction of the project. A final investment decision is not expected before 2025 which would trigger the Group's right, but not obligation, to invest a further $62.5 million to part fund construction of the project. This investment would increase the royalty rate from 1.60%, which at current commodity prices would generate a material portfolio contribution, to 4.25%.

Nifty (Copper)

In May 2024, Cyprium Metals Limited announced the results of the Nifty Surface Mine Scoping Study. The results of the study show an expected average annual production of 36,000 tonnes of copper. Nifty is a brownfield development and the Board of Cyprium has approved the advancement to a Pre-Feasibility Study. The Group holds a 1.5% Realised Value Royalty over the Nifty project.

Early Stage Royalties

SW2 (Uranium)

In March 2024, NexGen Energy Ltd announced the discovery of a new intense uranium zone on its SW2 property located around 3.5km east of its world class Arrow Deposit in Saskatchewan, Canada. Ecora has a 2% Net Smelter Return Royalty on parts of the SW2 Rook 1 property which contain the new discovery. In August 2024 NexGen provided an update on the results of its drilling programme which confirmed that the footprint of the new discovery is larger than Arrow's at the same stage of metres drilled and shows all the signs of being another world class discovery.

Canariaco (Copper)

In June 2024, Alta Copper Corp. filed a new Technical Report and Preliminary Economic Assessment ("PEA") for the Canariaco Copper Project over which the Group holds a 0.5% NSR royalty. The PEA outlines a project producing an average of 158ktpa of copper in the first ten years and with a total mine life of 28 years at an estimated upfront capital cost of $2.1 billion.  Additional drilling in a number of defined areas has the potential to delineate additional mineral resources.

Amapá (Iron Ore)

In March 2024, Cadence Minerals announced results of an optimisation study for the Amapá Iron Ore Project which delivered material capital savings to the project. In July 2024, Cadence announced an updated PFS-level economic study with an increased NPV for the project of $1.145 billion. Ecora owns a 1% GRR over a majority of the project area.

FINANCE REVIEW

The first half of the year saw increased portfolio contribution owing largely to the 2.0Mt in production from the Group's private royalty lands at Kestrel, which was higher than expected and at the upper end of the Group's full year guidance. As a result, the Group's portfolio contribution increased from $44.5m in H1 2023 to $51.3m in H1 2024. Other notable highlights saw the Group refinance its borrowing facility, which extends maturity to Q1 2027 at the earliest, with no step downs or amortisation requirements. This facility reinforces the balance sheet and provides capital for the Group to continue making acquisitions.

The second half of the year will see an increase in deliveries from the Group's Voisey's Bay cobalt stream following the successful installation of the materials handling unit at the Reid Brook deposit. This is a key milestone for the ramp up of the underground mine which is expected to result in 40 deliveries annually once the mine reaches steady state production, a significant increase from the 12-16 deliveries being forecast in the current year.

Absent further acquisitions, the second half of the year should see a reduction in net debt from its peak of $86m at the end of June, with more significant deleveraging envisaged in 2025. Although borrowings are running higher than previous reporting periods, the leverage ratio remains very comfortable at 1.43x which is well within the 3.5x limit in the borrowing facility.

The Group's new capital allocation policy was announced at the end of March and along with the payment of the 2023 final dividend, the Group executed a $10m share buyback program. In addition, the Group entered into a $10m financing package with Rainbow Rare Earths which resulted in a 0.85% royalty for $8.5m along with a $1.5m equity subscription.

With modest and manageable levels of leverage and significant headroom on the Group's borrowing facility the Group remains in a strong financial position and is well capitalised to continue to execute its growth strategy.

Results

The Group's portfolio contribution increased by 15% to $51.3m for the six months ended 30 June 2024 (H1 2023: $44.5m). The increase in portfolio contribution combined with the $23.9m fair value loss on the revaluation of the Kestrel royalty, which reflects resource depletion in the first half of the year and slightly lower forward-looking pricing inputs, resulted in an H1 2024 profit after tax of $11.5m (H1 2023: loss of $7.5m), generating basic earnings per share of 4.48c for the first half of 2024 (H1 2023:  loss per share 2.90c). Adjusting for the royalties from EVBC, valuation movements, non-cash items and the tax effect of these adjustments, resulted in H1 2024 adjusted earnings of $26.6m (H1 2023: $23.4m) and adjusted earnings per share of 10.38c (H1 2023: 9.06c).

The key driver for the increase in the Group's portfolio contribution during H1 2024 was the expected increase in volumes from Kestrel as production returned to the Group's private royalty lands, compared to H1 2023.  Slightly offsetting the higher volumes at Kestrel was the combined impact of slightly weaker coal prices, which declined from $242/t in H1 2023 to $222/t in H1 2024, and the corresponding decrease in the average royalty rate from 20.45% in H1 2023 to 19.09% in H1 2024, resulting in total royalties of $40.8m (H1 2023: $31.8m).

Production at Voisey's Bay in H1 2024 reflects the ongoing transition from the open pit mine and ramp-up to full production of the underground mine.  As a result, cobalt deliveries reduced by 33% to four in H1 2024 (H1 2023: six).  In addition to the reduction in cobalt deliveries in the first half, the cobalt price remained depressed with the Group realising an average sales price of $16.03/lbs in H1 2024 (H1 2023: $16.54/lbs).  The combination of both lower volumes and lower cobalt prices resulted in the contribution from the Group's Voisey's Bay stream, net of metal stream cost of sales, decreasing to $1.6m (H1 2023: $2.4m).

Elsewhere, volumes at Mantos Blancos were impacted by localised geotechnical issues resulted in a 15% reduction in royalties for H1 2024, despite the stronger year on year copper price, with royalties totalling $2.8m (H1 2023: $3.3m). At Maracas Menchen, the sustained weakness in the vanadium price resulted in royalties reducing by 35% to $1.1m for H1 2024 (H1 2023: $1.7m), despite volumes remaining flat year on year.

Whilst not included in portfolio contribution, the Group has continued to benefit from the price linked contingent consideration in conjunction with the Narrabri disposal. The Group is entitled to a $/t payment should the thermal coal price exceed $90/t. The Group received $0.1m in price linked payments for H1 2024, increasing total price linked payments to date to $2.3m. This is in addition to the $14.8m fixed payments received since 31 December 2021, with a further $2.0m to be received in January 2025 before final payments of $2.0m and $2.8m are received in January 2026 and December 2026 respectively. In addition to the price linked contingent consideration, the Group will be entitled to a further $5m at the point when the Narrabri South Extension receives permitting.