Ecora Royalties PLC

Thank you all for joining the call this morning and for your interest in our company. I will do a brief overview of the interim results and then as usual hand over to Kevin Flynn who will do the financial review. That will be followed by Juan Alvarez, who will cover the portfolio developments. And then it will come back to me for a final outlook summary. And then we will take questions and answers. So starting on slide four, As usual, these days with the COVID-19 update, we continue to closely monitor and evaluate the situation with regards to COVID. But at this time, all the material mines underlying our royalty-related revenues remain in production. And in fact... EBBC, which was off production, came back on earlier, a couple of months ago, and we're pleased to inform you that the McLean Lake Royalty, which has been off, should start production in September. So all our royalties will be producing, that were producing before, from Q3. We are also seeing Kestrel benefiting from the recent improvement in coking coal prices, the stabilization of that, and some hopeful recovery, and COVID-related restrictions being relaxed in India. We also have seen some strong increases in iron ore and copper prices. in the last quarter, as you will see on the graph to the right. And overall, we think that these challenging operational and capital market conditions for mining companies should present opportunities for us to acquire new royalties and streams. Those were somewhat slower to progress In the last quarter, everything was much more difficult with our due diligence and also counterparties moving more slowly, but hopefully in the second half of the year we will see progress on that front. So turning to slide five, Kevin will go through the contributions from the various portfolio companies to the H1 revenues in further detail, but overall the The figure for income was at $19.1 million, 43% lower than the previous period. And that was mainly a result of the significant decrease in coal prices by the COVID pandemic, particularly in Q2. In Q1... The Chinese market was effectively not producing coal, but they were continuing to operate their smelters for iron ore, and so the cooking coal price was quite high. But in Q2, that was reversed. And the Chinese were producing domestically, whereas the rest of the world demand wasn't that high. As the world recovers, we expect cocaine coal to recover with it. The impact of the lower coal prices was compounded by the ratcheted basis of our royalty, so there was a lower royalty rate. And there were a number of other one-off events, like the conclusion of the Glencore contract that Maracas mentioned, which in the short term hurt us, but long term should be beneficial with higher margins. And also companies like Labrador Inol taking advantage of the slowdown in June 2 to make more CapEx investments, which also resulted in lower portfolio contribution. Those one-off events are highly unlikely to occur again in the second part of the year, and we expect continued recovery in pricing of commodities. And in anticipation of that and a stronger outcome in H2, we are maintaining the group's quarterly dividend of 1.75p per share in line with our stated objective to return a significant proportion of our income to shareholders as dividends. Turning now to slide 7, that is a repetition of a slide we showed earlier in the year, which shows the way in which the portfolio contribution has grown over time, but also emphasizes the way in which we have been making acquisitions and diversifying away from the dependence upon Kestrel, so that effectively by last year we had replaced Kestrel's contribution in 2017 to business. And you'll see that trend very much being emphasized on slide 8, where you can see from 2013 to now, test draw has gone from 76% of our assets. As of the 30th of June 2020, it was down to 21% of our asset base. on a net after-tax basis. And this is the first time in the company's history for many, many years that we have replaced coke and coal with another commodity of our primary exposure. And there you can see that our Labrador iron ore investment, as well as our other iron ore investment in the development portfolio, contributes 31% of our net asset value. You can also see the way in which the geographic exposure has been diversified. And Australia, having been 90%, is now 41%. Canada has grown significantly to become our second largest area of exposure. And South America has come up as well. Slide 9 looks at the way the portfolio would appear if the funding rights that we have to INCOA and PAUI are taken up. So INCOA was a high-quality, long-life calcium carbonate project in the Dominican Republic with a processing facility in the U.S., and we've entered into a $20 million financing agreement on that, which is subject to conditions, but we expect to be called on that funding in late 2021. And the power is a low-cost nickel and cobalt operation in Brazil, where we have the ability to invest up to $70 million as the project is developed. including those two commitments you'll see on the pie chart to the right that base metals would now become 29 of our total commodity exposure and iron ore would in fact become 25 and so i think this illustrates the way in which we are moving quite rapidly to reposition Anglo-Pacific as a royalty company for 21st century materials which are high quality and are going to be used to create a greener economy. Moving to slide 10, this illustrates the way in which the dividend cover was strong in 2019 and why we are confident in maintaining the dividend at the historic level for the second quarter. But despite the high dividend payments and the very high yield, the chart on the Wright illustrates the way in which our EBITDA multiples remain very, very low in the mid-single digits, as well as the share price compared to net asset value continues to trade at well below one times NAV. Page 11 looks at some of the ESG achievements that are occurring within our counterparties. The way in which Labrador Inor is producing pellets, which result in much lower Scope 3 carbon emissions, and you can see that illustrated on the right side of the chart. They're making a big difference in carbon emissions by as much as 40%. And the rest of the table on the left looks at the way in which Montes Blancos, our copper royalty, is moving towards renewable power. The vanadium producer, Lager, is reusing its water and using local employment. And McLean Lake are mining in a more efficient fashion. So with that, I'll hand over to Kevin Flynn to cover the financial review. Kevin.

Thank you, Julian. Good morning, everyone. If we turn to slide 13, which is our performance indicators, as Julian mentioned, our revenue and portfolio contribution was significantly down in the first half of the year, down 43%. So not surprising to see the impact of that coming through our KPIs. But I suppose looking beyond those, the main reason for this was an unprecedented disruption in coal markets caused by the Indian port restrictions as a result of COVID-19. And I think whilst we have made very considerable progress in terms of diversifying away from coking coal, certainly in terms of asset value, as Julian mentioned, it's becoming our largest royalty. For the next couple of years, we would still expect Coca-Cola to represent the majority of our revenue source, whilst the revenue from our other investments made over the past few years keeps in. So, a significant disruption in the coal market has unfortunately impacted our earnings in the first half of the year, along with one or two other one-off events, which we'll look at next. But I think it's important to know that we think a lot of the drivers are hopefully behind us as the initial shock of COVID-19, which really came through in the second quarter of the year, has passed. Markets have returned to a degree of normality and actually, as we'll discuss, a lot of commodities in our portfolio very, very well through the COVID crisis. Turning to 2014, I'm not sure the numbers will go through some of the more technical aspects on a massive basis. I think what was very pleasing in the first half of the year was that margins were very steady from the portfolio. And as Julian mentioned, we were experiencing very minor disruption of the EBC, which was running a two-week period. and the claim rate has been placed on care and maintenance for what's probably going to be five months of this year. But elsewhere, the key royalties which contribute to our revenues remain fully operational at normal capacity, and that's really testament to our strategy of investing in jurisdictions which really prioritize the mining industry and support their industry of key activity. Ketra and Maribyr suffered in the period due to the destruction of the coal market, largely as a result of the Indian port restrictions, which really basically took a key import market offline for basically the second quarter of the year. And with China self-sufficient in terms of its supply and demand development, domestically respectively, that led a lot of credit to those events in the seed market, which basically resulted in producers being tried to taper. So a very weak business. half and second quarter in particular from Kestrel narrowed down in pricing. But many competitors see the potential for Coca-Cola in particular to outperform in the second half of the year. So we're hoping to see a rebound in terms of pricing to come from Kestrel and we're pretty optimistic on volumes as well. This is a negative contributor to income. This is due to being charged by the operator with this portion of the agreement termination. As Julian said, this has impacted on hedge funds. The weather discounts associated with that will take direction. And now that the sales function is back in hands, we would see some higher margins coming through from this royalty going forward. Nontest was a pretty steady during the year. during the year to date. We're pretty pleased with that, as I'm sure Ron will discuss. A couple of prices were weak in the second quarter, but actually have really rallied since. So we see some upside to come from that in the period. For now, unfortunately, the legal process is still ongoing. I also don't want to say too much about the process on this call. We still believe we have a very good case, but revenue conformance should have been higher. other than the level of charges and deductions that they continue to apply. Are the standards performing really in our portfolio and as kind of where I would go in terms of how it's performed as a commodity in the years to date? It might be surprising to see revenue from wire not outperforming on our P&Ls, but the reason for this is that there was some planned as well trying CapEx expenditure being undertaken by the underlying operator, which reduced the level of dividends paid up to Lyle. We would expect, given the strength of the iron ore market at the moment, and the fact that CapEx is now behind them, that there could be some upside to those numbers in the second half of the year. Elsewhere, the McLean Lake revenue, certainly in terms of the principal repayment portion of that revenue, boils down, and this reflects the current maintenance of this operation throughout the second quarter of the year. And even the studio account, similar to the Labrador, you might expect that to be higher given the gold price performance. There's been a working capital drag associated with the two-week shutdown, so there's been a slight lag between the resumption of their sales and receipt of cash. And so overall, whilst it's disappointing to report a 43% downturn in revenue, it's largely due to increases in disruption in the coal markets, but we see a lot of potential for growth in relation to price and one of the things. And Scout 15, which is our income statement. I won't dwell on this too much. I'll pick out a few things. Operating expenses. I was doing that each one last year. This one we have made a provision for the remaining costs for the formal process.

So we would expect to see slightly less costs coming through in the second half of the year. The revaluation of the core royalties, again, these things are a mark-to-mark changes, which we strip out from our adjusted earnings. But with the core price applying to the current period, the output is the WRO, which is kind of very good.

The balance goes through quite higher levels of borrowings in the period. The level of revenue we received obviously means our D-level is slightly lower than the additional revenue that we received in 2003.

And the FX, the loss of the report, that's basically a mark to market.

Again, I think we're kind of but this is kind of a . It is accounted for to market as is liable, but other intangibles are treated at amortized cost. So we'll further down the balance sheet and take the deferred provision against the Kestrel headline number of 75 million, as Julian pointed out. Law York is now our largest asset exposure on our balance sheet as of 30th of June, the first time a non-co-royalty has put all that traffic. Some other items just to drag the 99 exploration interest as of June, the 5.5 billion, that basically is our holding in Berkeley, Georgia, which has performed very well recently given the fact that they have attended one of its one of the two key outstanding firms left to commence construction. So that portfolio is probably the downside of that versus the quality of action. Overall, our net debt did increase. We'll touch on that when we get to liquidity, but we're very comfortable with that.

The interruption, Kevin, there is some static coming from your line. Can we just double check you have your PC muted?

Okay, apologies everyone. Hopefully you can hear me a bit better. I'm just about to turn to slide 17, which is my last slide before handing over to Juan. Just to touch on our cash and balance position and where we see this moving in the second half of the year in terms of availability to finance future growth. Despite revenue being down in the period, we still generated a significant amount of cash from our portfolio of $21.9 million. Our cash flow in the first half of the year, the outgoing dividends and taxes are always kind of weighted more to the first half of the year as we pay the balance of our previous year's tax in May or June of the calendar year. And obviously for dividends, the final dividend is a much higher level or was a much higher level in 2019 versus the interim levels. So those two items are weighted heavily heavier to the first half of the year. So we would expect those to reduce in the second half and cash generation to pick up accordingly. We still have around about $59 million of undrawn banking facilities available to us between $2.3 million and $2.3 million. And these are available for growth opportunities. But our borrowing number increased in the period. I think it's still very important to note that we still operate with a relatively low level of leverage. Around that one time last June, we obviously have capacity to go to two times leverage. So while the borrowing number is larger, it's still very well covered by our earnings. And also to note, we did make 5.7 million pounds of investments, mainly into live auction periods, the reinvestment into dividends in the first half of the year. So I think just to summarize in terms of where we are in the financial position, I think we're still in a very strong balance sheet. We still have significant impact for us to liquidity, to proceed, and opportunities in the second half of the year We've seen terrorism behind some of the commodities that we have exposure to, and we would be cautiously optimistic that the second half of the year will be better for us, given that some of the minerals that are in the first half of the year are behind us, and hopefully some normalization in the coal markets to come. With that, I'm going to run to discuss our portfolio.

Thank you, Kevin, and good morning, everyone. um as kevin and julian mentioned the only code related shutdowns we've experienced are the zenith and the plain lake assets and the evp world and both of these are considered non-material During the COVID situation, we've been proactively keeping in contact with our counterparties on a more regular basis, just in order to keep abreast where possible of any new developments. Turning to page slide 20, testful production continues without significant interruption from COVID. However, Adaro did revise its production guidance for 2020, down from 7.2 million tons to 15 million tons. Importantly, the essential products remain a high demand product due to its token characteristics and has contracted the majority of its 2020 production mainly to Asian customers including India, South Korea, and Japan. Over the page to slide 21, we invested an additional 5.7 million pounds for a half-increasing in-house basis of 7%. And guidance from IOC on 2020 production is essentially unaffected by COVID and remains at 17.9 and 20.4 million tons. As mentioned previously, IOC did announce the closure of two pellet plants out of decline at the end and the first quarter of 2020. But these have now been brought back online recently because of the improvement in the demand in the Atlantic telemarketer. Again, no significant disruption to choosing COVID. The new model making project for which we invested in and instituted is for the increasing treatment of 7.3 million tons that continues to progress and until June completion in H2NH year. One complete project is estimated to produce an average of 52.4 kilotons of available copper per annum in the next 10 years of line life. Over the page on slide 22, Marissa mentioned, although there's been some logistical challenges, COVID-19 has been really well managed on the relatively remote side, and there's been no significant impact on production. The project had a record level of sales in Q1 2020, which is great for our world, but also triggered the second and third generation payment of $1.5 million. available to the original owner of the world. The 2020 production guidance is unaffected by COVID and has remained unchanged at 11.5 to 12.25 to the 100 to the 05 and sales guidance remains at 9.5 to 10 to the 100 to the 05. The difference between production and sales is treated as finished product inventory. because they are now recognized as a time of delivery instead of at the my gate. And it can take several months and the time of the delivery to the end of the month. Due to the short-term COVID effects, such as things such as limiting access by contractors, the planned upgrades have been put on hold for the short term, including improved limits. which would have had the effect of increasing main plate capacity to 1,100 tons per month, and this is now extended until Q4 2020. At Narrowbrine, fiscal year 2020 long coal production was within the Whitehaven Coal Guide for 60.5 million tons, and slightly below year 2019 production, mainly because of a major long-haul that happened this year, an upgrade to deliver the long-haul support. It's very alive in 2021. It is 6.7 million tonnes, which is virtually in line with the 2020 production. The next long-haul move is during Q1 calendar year 2021. Also, Narrabri State's re-invention program appears to be on track, with EIS and engineering studies being advanced to further investigation of coal quality. Moving on to the next slide, slide 23. As Kevin mentioned, Cigar Lake, McLean Lake Mill, placed on aramates in March 2020 due to COVID. and remains shut at present. However, Tameco has announced that it will restart operations at the beginning of September this year. New driving for this year is 10.6 million pounds of uranium, compared to the previous target of 18 million pounds of uranium, reflecting the period of shutdown. As you can see, the operation was also affected by COVID, although it was only shut down for a period of two weeks. And importantly, this was because of a sector-wide enforcement by the Spanish authorities. The production guidance for the fiscal year ending 30 September 2020 has been suspended by Urbana and is likely to foreshore, mainly due to lower-grade oil being processed. At Salamanca, where we own an approximately 7% equity stake as well as the 1% MSR on all production from the project, There's been some very positive news there. Barclay Energy announced that it had received the very long-awaited urban engine license, which is issued by the local government municipal authority. This is really a great step in permitting for the company. And now the only remaining license is for the authorization for construction license, which is issued by the nuclear safety council. Now turning the page to our development assets, which offer a significant upside. Following our investment at the beginning of the year, the construction on the Incoa calcium carbonate project continues, with latest reports being that construction is on time and on budget, and commissioning is due in 2021. We've also had several very positive news stories on some of our other development assets during the half. At Cano Reacto, Candense announced that final major 42 metals had taken a near 20% stake in the company and has allocated two engineers to work on a joint technical committee to help identify the optimum strategies for development of the project. On the new V1 gold project in Liberia, Hummingbird Resources presented into an agreement with ARS, whereby ARS will undertake a feasibility study on the project in return for a 49% interest. These are all very positive developments for us. And now I'll hand back over to Julian to wrap up. Thank you, Juan.

Yes, I think those positive developments do very well for the medium-term growth in our royalty income, and we've been very encouraged by these developments, particularly in Q2. So wrapping up with the outlook, we do expect stronger results in the second half of the year across much of the portfolio. As I said, Kestrel should benefit from the recent stabilization and slow growth in coking coal prices. and the fact that the Indian market has been reopened effectively to poking coal imports. Labrador iron ore will benefit from the very strong current iron ore prices, as tomorrow's fundamentals remain strong. and the one-off charge from Maracas mentioned in Q2 is not going to be repeated thereafter, and we expect enhanced margins from the conclusion of the Glencore uptake agreement to assist us going forward. The copper price is helpful. for Manfred's copper, and when the Denison financing agreement kicks in again from September, that will be an additional source of income. So we face the second half with optimism, and we do have substantial undrawn borings available, as Kevin mentioned. to finance further growth in H2, and we are seeing some interesting opportunities. It's been frustrating having executed on them, but we continue to expect to be able to do one or two transactions in the second half. With that, I'll hand back to the operator to arrange the Q&A session and look forward to your questions. Thank you.

Thank you, sir. If you would like to ask a question on today's call, please signal now by pressing star 1 on your telephone keypad. That's star 1 to ask a question. We will pause for one moment to allow everyone to signal. Again, that's star 1. We have a question in the queue from Richard Hatch from Barnburg. Please go ahead.

Thanks very much. Good morning, Julian and team. Thanks very much for the call and congrats on a solid set of numbers in a difficult environment. I've got three questions. First one is just on Kestrel. I wonder if you can just remind us what kind of bid account the Kestrel methodological coal product takes into the market and where that sort of bid account ranges in various parts of the cycle for the coal market, what we're seeing at the moment and where you believe that's going. Second, just on the dividend, you point out about the flexibility on the balance sheet. I wonder, Kevin, if you might just be able to expand a little bit more about how you're considering the dividend in cover just in a range of scenarios for the cold price. For example, if we see net colds, how does that shape your thinking? And I suppose that kind of feeds into my third question, which is just on the deal pipeline. Julian, you talked about the hope that you might be able to put a couple of lawyers on the table. Would you be able just to give a bit of clarity over the size or even the portfolio contribution that those fields could add in terms of when the meaningful contribution might come, whether it's in the near term or longer term, and again, how that sort of shapes your call on the dividend and capital allocation. Thanks.

Sure. Well, taking the first question about Kestrel, I think what we were seeing before COVID was that as Kestrel was ramping up production, they were needing to attract new customers and were providing a larger discount to the benchmark pricing of the product in order to gain market share. And with the developments in Q2 in India, they then had to divert some of that material to China, where, again, there was an oversupplied market and they accepted larger discounts, and those discounts were up to 20%. You would expect, as the market tightens, and we understand that they've sold house, that production would remain the year that those discounts would narrow somewhat, but we don't have complete clarity as to what those narrow discounts would be. I'll hand over to Kevin to discuss the dividend question.

Kevin. Thanks, Jim. Yeah, thanks for the question.

I think dividend levels is always something we look at and we like to have a healthy level of dividend cover. But look, we've been through some very unique events in the first half of the year. And I think whilst we expect some normality to return to the cold markets, which is key for us in the second half of the year, I think it would be very premature to make a dividend decision or alteration at this point based on really unprecedented disruption to the coal markets for what's hopefully an isolated period of time. So, you know, again, I think we like and we aim to have two times dividend cover. We may not achieve that this year, depending on how quickly the cold markets reopen and rebound. But again, I think it's too premature to think about dividend levels, especially if some normality returns to those markets.

Richard, with regards to the question about potential deals, we continue to look particularly at areas which are interesting and out of favor. So we're looking at cobalt. We're looking at lithium. There are some more copper opportunities. And we're looking at potash and phosphate. There are a variety of transactions of different sizes. None of them have really fallen away over the last quarter. Some have been delayed. I think many companies are making decisions more slowly in the current environment. But the aim is very much to reposition Angler Pacific away from the coral heritage towards being the royalty company for 21st century materials. I think we're well on the road to achieving that. The focus continues to be on producing royalties, and there are a number of those which are in the pipeline and we'll just have to see which one of those, which one of those, in fact, we can into fruition and how we finance those will be decided at that time.

Thanks a lot for your time.

And as a reminder, if you would like to ask a question, please press star one. As a final reminder, if you would like to ask a question, please press star one. There are no further questions on the line at this time. I would now like to turn the call back to the host for any additional or closing remarks.

Well, thank you very much for all of your interest. You know how to get hold of us if you have any further questions. But I'm glad we got through this. more difficult second quarter. As I said, we look forward to the remainder of the year with optimism, with positives about the prices recovering as expected. The positive developments in the development portfolio bode well for the medium term, and we will continue to execute and diversify the portfolio. Do reach out to us if you have any further queries. Many thanks for your time.