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.