Ecora Royalties PLC

Good morning, and thank you for joining us for eCora's first half 2024 results presentation. In the H1 period, we saw strong portfolio contribution of 52 million, and that was driven primarily by a high volume production within our Kestrel royalty area. During the period, we acquired a royalty over the advanced stage Palabora rare earths project. It's a high quality rare earths development project that's targeting first production in the latter half of this decade. We also saw the underground mine extension project at Voises Bay approach completion. A key milestone for ramp-up was achieved in the first half of the year, and a second key milestone is expected to be achieved in the second half. In light of a weak nickel price environment, BHP has temporarily halted the construction of the West Musgrave project with a restart to be considered by February 2027. And this is of course disappointing, although we do remain very confident in this asset's potential as a low cost, long life, fully permitted nickel and copper project. Capstone Copper released a feasibility study or an updated feasibility study on Santo Domingo, which confirmed the project's robust economics as a low cost producer of copper. We ended the period with net debt of approximately $86 million and a leverage ratio of 1.4 times, which is well below our financial covenants. And with that, I'll hand it to Kevin, who will discuss financial performance in more detail.

Thanks Mark. So turning to our KPI slide and we'll go through these in a little more detail over the next few slides. But the key summary here is that the first half saw a very good performance from Kestrel coming in at the top end of our guidance and this was the driver for the growth in portfolio contribution. Our revised capital allocation framework went live in the second quarter and this resulted in a dividend of 1.7 cent for the half year. Under this policy we also undertook a 10 million dollar share buyback program and this was financed through the disposal and recycling of our LIORC stake. The buyback is reflected in the per share metrics in this presentation. And finally, the balance sheet remains very healthy. Following the final payments to South 32 in January, the group now has no further fixed commitments with leverage very low at 1.43 times at the half year and a loan-to-value ratio of only 16%. Turning to our portfolio contribution, 2024 is set to be a year of two halves, with the first half heavily weighted to Kestrel volumes, and the second half set to see a significant ramp up in deliveries from Boise's Bay. The core portfolio generated $10.5 million in the period, a 17% reduction on the comparative period, although H123 included income from our full stake in LIORC, which we disposed of in the second quarter of this year. Although we only received four deliveries from Voices Bay, the real impact of the material handling unit and underground ramp up should really start to come through in the second half. Our full year guidance remains at between 12 to 16, so we expect to see at least a doubling of volume in the second half of the year with the ramp up continuing further into 2025 and beyond. We saw lower volumes from our Mantus royalty in the first half of the year, but we expect these volumes to accelerate in the second half as the impact of the de-bottlenecking project continues. And we would also be reasonably bullish on copper price environment going forward also. Maracas was down year on year, and this was mainly due to weaker vanadium prices in the period. The first half saw Cigar Lake return to operating at 100% capacity, and this benefited the McLean Lake toll income in the period. And finally, at Four Mile, revenue here was buoyed by strong uranium pricing in the period compared to the comparative period last year. But Kestrel was the clear highlight in the period, generating $41 million of revenue on 2 million tonnes of sales. And this was at the top end of our guidance. We're expecting immaterial contribution in the second half from Kestrel, as mining is not expected to return to our private royalty area until the first quarter of next year. So overall then, a good performance from the portfolio. And outside of Kestrel, we should see volume growth at most of the assets in the second half of the year. Turning to the next slide, which shows our adjusted earnings, I won't dwell on this too much. It's very similar year on year in terms of its composition. Just to pick out one or two points, the tax charge in the period reflects the income received from Kestrel and that's taxed at 30% in Australia. So with little income forecast from Kestrel in the second half of the year, there should be a corresponding reduction in tax to come. The increase in the finance costs reflects higher average borrowings in the period as the final payments to side 32 were largely made in the second half of last year and January this year. This all results in adjusted earnings of 26.6 million and after taking into account the share buyback program resulted in adjusted earnings per share for the first half of the year of 10.4 cent. Turning to the balance sheet. When looking at the balance sheet, it's always important to remember that the group's $263 million of royalty intangible assets are carried at the lower of cost or realisable value. So in other words, in many instances, the fair value of these assets is higher and this value is not reflected on the balance sheet. Our net debt, which we'll come to on the next slide, increased by $11 million in the period to what should now be a peak of about $86 million. And at these levels, the balance sheet remains very healthy. The total royalty assets net of deferred tax were $543 million. So this implies a loan to balance sheet asset ratio of only 16%. And this number would be lower still if all the assets were actually carried at fair value. Key takeaway from this slide, net assets of 468.2 million equates to approximately $1.88 per share and this is the equivalent of £1.47 which is considerably higher than the current share price level. Turning to our next slide and borrowings, net debt, as noticed on the previous slide, increased modestly to 86 million in the period. Importantly, once the Palabora conditions are met, the group will have no further fixed commitments or capital outlays ahead of it, which should see net debt reduced considerably over the next 12 to 18 months, depending on investment activity. Even with net debt of 86 million dollars, the business is very comfortable from a leverage perspective. with operational leverage of only 1.43 times and loan to balance sheet assets of only 16%. The borrowing facility itself was refinanced in January, which provides for greater flexibility and a lower cost structure. The latter should reduce further as it's widely anticipated the Fed will commence cutting interest rates in the second half of the year. But importantly for us, there are no step downs or fixed amortization schedules associated with this facility. and this facility has a maturity date of January 2027. So no immediate refinancing pressure and this date could be extended by a further 12 months anyway upon request. So overall the group remains well capitalized with no capital commitments, low levels of balance sheet and operational gearing from which to continue remaining active on the investment front. Now the final slide shows how the half year dividend is derived under the new formula from our capital allocation policy. And here what we look to do is to average the two preceding six month periods. And this is really being done to attempt to reduce the significant impact of volatility from Kestrel on free cash flow. And this depends obviously as to whether or not Kestrel operates within our royalty area land or not. the effect of the averaging method should produce a smoother dividend in each half-year period. For this half-year, the dividend was based on free cash flow of $12.7 million, and at 33% payout ratio, which is towards the top of our stated policy, this produces a dividend per share of 1.7 cent for the half-year. And with that, I'll hand back to Mark.

OK, great. Thank you, Kevin. On slide 12, we can see a quick snapshot of our portfolio as of the half year. A couple of key points I'll add here. First of all, the portfolio continues to be weighted to establish mining jurisdiction and leading operator partners. Base metals remain the core of our portfolio, led by copper. And our exposure to low-cost assets, which are producing or in the future expected to produce, at levels which can generate strong cash flows through commodity price cycles. The portfolio also continues to be principally weighted to producing assets. On page 13, as Kevin just mentioned, we saw very strong performance at Kestrel in the first half. And we also know that Kestrel operations are expected to be outside of Accor's royalty area in the second half of the year, such that based on the volumes produced to date, we've seen Kestrel produce at the upper end of our expectations and guidance for the full year 2024, which is a great result. We'll come back to Boise's Bay on an upcoming slide. Looking now at Santo Domingo, Capstone released an updated feasibility study on the project, which confirmed two things that we were confident of seeing. First is robust project economics, and second is the potential for this project to be a very low-cost producer of copper. Capstone has estimated average copper production over a 17 year mine life at only 33 cents per pound, confirmed Santo Domingo amongst the lowest cost copper projects globally. We'll come back to the Palaboa Rare Earth projects in a moment. And just the final point on this slide is in relation to LIARC. As Kevin mentioned, we monetize the majority of our holding. we've realized an attractive total return on that investment with the proceeds now being recycled to fund the share bear back program that we completed earlier this year. In terms of a Kestrel update, the real key takeaway on this slide relates to the visibility that we have in relation to the Kestrel volumes over the next few years, and more specifically the confidence that the volumes, despite being out of our royalty area in the second half of this year, will return next year. And you can see this in the mine plan on the left hand side of the slide where we've superimposed our royalty area with the long wall panels and also included a rough estimate of timing in terms of when the panels will be mined and thus when production will be in our royalty area. So turning now to Voisey's There are three key points we'd like to highlight on the slide. The first relates to the underground ramp up of ore production. And as you can see on the left-hand side of the page, we do feel as though we finally have a very good line of sight on that volume growth. Vale is forecasting a, again, very steep production growth starting in 24 all the way through to 26 when full production levels are expected to be achieved. So the second point is, well, what does that mean in terms of volumes delivered to ECORA? Well, in the second half of this year, we expect a big step up versus the first half. In the first half, we had four deliveries. In the second half, we expect eight to 12 deliveries. And actually so far, so as of the end roughly of August, we've had one lot delivered, one is in port, and two are expected to ship imminently. And then for next year, we anticipate 20 to 28 deliveries before achieving steady state delivery levels of around 40 per annum for the remainder of the mine plan by the end of 26. And then the last point is on pricing. As some of you may recall, Boise's Bay primarily produces a premium product. Around 80% of our deliveries to date have been alloy grade, and in the market today, alloy grade is realizing a substantial price benefit relative to standard grade product, currently around a $4 per pound differential. We recently announced the acquisition of a royalty over the Palabora project, and we have delighted to get this one across the line after having reviewed the rare space now for at least four to five years and consistently seen this project screen at the top of the list on a number of metrics. First production is targeted for 2027 and we structured this transaction such that there are step ups in the royalty rate should things slip into the future. The royalty closing is subject to execution of certain security documents and such that we expect the deal to, the CPs to closing to be met fairly soon. In our full year 2023 results, we touched on a new discovery that had been made in a royalty area we have in a property owned by NextGen. And since then, we've been really encouraged by some of the progress that's been made, specifically some of the drill results that have come up. On a like-for-like basis, the resource footprint that's been discovered is actually larger than the nearby feasibility stage aero deposit. And so this is one that we'll continue to watch very carefully and await further updates from NexGen. In our four year results, we also announced an updated capital allocation framework with four key priorities, the force being growth. And during that period, as we mentioned already, we acquired a Palo Barro royalty. Second, deleveraging and maintaining generally balance sheet strength. As Kevin already mentioned, we have no further fixed commitments. and any growth that we'll pursue will be very much in the context of maintaining a strong balance sheet. We mentioned the CAF dividend. Kevin talked about the H1 dividend at 1.7 cents per share. And one of the benefits of our updated capital allocation framework is that with the change in dividend policy, all else being equal, we've been able to deploy the differential in cash dividends to growth. And in this year, we saw that differential funding the $8.5 million Palo Barro royalty acquisition. And then last, buybacks. As we mentioned, the board would opportunistically consider a buyback program in the event the Accor share price materially traded below estimates of net asset value and in the period we completed a $10 million buyback. Now onto our growth strategy. This year has been a great year for reviewing opportunities. We've actually seen a big pickup in the number of files across our desks. and we're reviewing them with a couple key priorities in mind. So the first is to infill and diversify the portfolio around some of the larger cornerstone royalties we've acquired the past couple of years. Number two, our primary focus continues to be to identify royalties that are in production or that are close to production that meet our investment criteria. We'll also consider opportunistically smaller royalties over really world class projects. But ideally, we'll have completed a larger producing royalty acquisition before we do another longer dated development stage royalty. And all of these, and again, I can't stress enough, all of our opportunities are considered in the context of a strategic priority to maintain a strong balance sheet. no change in our commodity focus, and encouragingly, we've seen a relatively good level of copper opportunities actually this year, which we're very keen to maintain at the core of our portfolio. So looking ahead at the next couple years, we've already spoken about Voices, we've spoken about Santo Domingo, we've spoken about West Musgraves, and we've spoken about Mantos Blancos, as well as Palabora. So I'll just focus here on Piauí and Nifty. At Piauí, The company continues to progress financing discussions with a number of very high quality interested parties, but unfortunately the backdrop of the current nickel price environment is challenging and it appears as though the conclusion of that financing process will be delayed. That's no longer expected for 2024, expected 2025 or later. Cyprium recently completed an Aussie dollar $40 million financing with Glencore. Those proceeds, in addition to a targeted further raise of Aussie dollar $20 million, should be sufficient to fund the restart of cathode production. And in parallel, and this is really more interesting to record in the longer term, The company is continuing to progress a study on the restart of copper concentrate production, which has historically been targeting annual production of around 36,000 tons of contained copper in concentrate per annum. Looking at the core share price versus what's priced in, we've refreshed this slide. This is one that we show regularly in terms of where we're trading versus the net asset value of the business. And the shares continue to appear to offer substantial value. The share price is actually today less than the value of the producing portfolio and actually the high quality development portfolio is priced in today as pure upside. So to conclude, in summary, the key points we've mentioned today, we had a very strong H1. We anticipate that to be followed by volume growth in calendar year 24 and 25. We currently are in a good position with respect to our balance sheet. Our leverage ratio of 1.4 times is well below financial covenants. Our copper growth portfolio is expected to continue to see further de-risking events over the course of this year and next. It's a very attractive entry point for Ecorra shares, currently trading around 0.4 times of NAV. A strong counterparty list developing a pipeline of near-term revenue growth. as well as the producing portfolio. And last, we're seeing a good level of opportunities, which we'll always evaluate in the context of ultimately maintaining a strong balance sheet. So with that, thanks for joining us today, and we're happy to take any questions you may have.