Now I'd like to turn the conference over to Julian Andrews, Managing Director and Chief Executive Officer. You may begin.
Thank you. Good morning and welcome to Deterra Royalties First Half 2025 Results Call. I'm Julian Andrews, MD and CEO of Deterra, and I'm joined today by Jason Clifton, our Chief Financial Officer. I'll begin today with some introductory remarks, and then Jason will give an overview of our financial results. Following that, I'll provide some brief comments on our approach to investment, and then we'll hand back to the operator and open the line for questions. Starting on slide four, I'm pleased to be reporting that the company is in good shape, with record volumes from our key producing assets underpinning strong revenues and significant progress in some of our major development assets, highlighting the option value within our portfolio. Our producing assets continue to perform.
Mining Area C once again reported record production and sales tons following BHP's announcement at the end of last financial year that the South Flank expansion had reached nameplate capacity on a run rate basis. We're also reporting for the first time revenue from the gold offtake contracts and other assets acquired during the half. These contracts produced a record number of ounces, noting we consolidate from the 2nd of September, and with record gold price and increased volatility, they provided an important source of revenue, more than covering the incremental cost of debt from investment in the period. Since our last report, we've also seen significant progress in some of our key development assets. At Thacker Pass, we saw further de-risking of funding with the U.S. Department of Energy loan closing and additional investment and support from General Motors, largely securing CapEx for phase one.
Further, the updated NI 43-101 report from Lithium Americas last month outlined a significant increase in reserves and resources, supporting a doubling of planned production capacity and a life of mine of up to 85 years. There's been progress at a number of other development projects as well, over which we hold royalties, most notably the La Preciosa Silver Mine, where the operator, Avino Silver and Gold Mines, has announced it expects to begin processing material later this year. Net profit for the period was AUD 63.9 million, and the directors have declared a fully franked interim dividend of AUD 0.09 per share, which is approximately 75% of reported net profit after tax. Integration of the Trident portfolio is now complete. At the time we announced the offer, we said that we saw it as an opportunity to capitalize on a counter-cyclical investment in high-quality assets with substantial optionality.
Since acquisition, these assets have exceeded our expectations in that regard, both in terms of financial contribution and progress on assets in development, particularly the Thacker Pass project. We continue to evaluate opportunities to add to the company's portfolio through value-accretive investment, and with our long-term outlook and short-term liquidity, we're positioned well to execute on these opportunities as they arise over time. With that, I'll hand over to Jason.
Thanks, Julian, and good morning, everyone. Today we've released our 1H 2024 results, which for the first time reflect our acquisition of Trident. If you move to page five, you'll see the underlying EBITDA for the period is 106 million, down 7% on 1H 2024. That decrease comes mainly from lower iron ore pricing, which is offset by both stronger MAC volumes and the contribution of new revenue sources, particularly 7 million from the gold offtakes commencing September 2024. As Julian mentioned, the integration of Trident is complete, and we will deliver synergies at the top end of our guidance range. At an operating level, so that's excluding one-off transaction costs, Trident has been cash flow positive in the period. We have a strong balance sheet, well within all of our banking covenants and within our net debt to EV target range.
On page six, you can see the revenue line and the contribution of gold offtakes and other royalties that are offsetting lower MAC revenue. There are a number of new one-off items, and I'll take you through those in detail shortly. However, important to note on this page, the effective tax rate is a bit higher due to one-off non-tax deductible Trident transaction costs, and that gives a statutory impact of the half of AUD 63.9 million. Adjusting for those one-offs and the tax-affected amount gives an underlying impact of AUD 68.5 million, and at the top right, you can see the AUD 0.09 per share dividend declared, which is fully franked and equates to 74.5% payout ratio. On page seven, you can see MAC royalty revenue was down 12% on 1H24, which came from a 22% decrease in realized iron ore prices.
On the right hand of the chart, you can see that this was offset by growth in sales volumes as MAC moves towards its 145 million wet metric tonne per annum capacity. Page eight shows the gold offtake revenue. The top left shows the six-month activity to 31 December, and the bottom left shows what Deterra has consolidated from the period of acquisition being the 2nd of September 2024. The gold offtakes are treated as a financial asset, and so are revalued each period. On the right-hand side of the chart, you can see historical information on the offtakes during Trident's ownership. The increase in ounces delivered in 1H 25 came from Los Filos resuming normal operations following a mine disruption and Greenstone commencing deliveries in June 2024. On page nine, I've separated recurring and non-recurring P&L line items.
Operating costs were up during the half as we implemented efficiency measures following the Trident acquisition. These were offset by lower BD costs. The gold offtake depreciation is the function of the AUD 86 million opening book value multiplied by ounces delivered in the period over ounces in the book on the 2nd of September. Net finance costs are mainly driven by debt levels, and net debt was AUD 308 million at the end of December 2024. We had an interest rate, a weighted average interest rate throughout the period of about 5.84%, and so for four months, that's where the majority of that driver for the net finance costs comes from. One-off Trident costs are within guidance at AUD 12 million, and no further Trident integration costs will be incurred going forward. And we've also had AUD 10 million in non-cash gains, which result from two items.
Firstly, an AUD 3.9 million revaluation gain on the offtakes, and secondly, a one-off AUD 6.2 million non-cash gain on closing of the hedge that we took out to hedge the Trident purchase price. Moving to page 10, you can see the balance sheet is strong. We are well within all of our banking covenants and have a net debt to EV of 12.1%, and maturities are spread across future periods. Finally, on page 11, we've outlined our capital management framework. We advised in June last year a dividend policy with a minimum payout of 50% of NPAT, and our declared fully franked dividend of AUD 0.09 per share is consistent with that policy. With that, I'll pass back to you, Julian.
Thank you, Jason. Turning now to our strategy and outlook, and I'll turn to page 14. Our strategy remains focused on building shareholder value through both development of the projects within our portfolio and on further value-accretive investment. Our portfolio now contains a number of short-term catalysts and longer-term optionality. Clearly, we're coming to an end of a period of significant growth at Mining Area C, with production rates having more than doubled in the last three and a half years. Although nameplate has been reached on a run rate basis, to the extent that these rates are maintained over a full period, we may still see some volume growth on an annual basis and associated capacity payment.
Other short-term catalysts to note include a full notice to proceed on Thacker Pass, which LAC has indicated they expect early this year, noting that the buyers have already begun work in order to de-risk the planned production start date in 2027, and Avino's announcement regarding expected processing and material later this year. In terms of investment, we're focused on adding high-quality, long-life assets with significant option value at the right price, and in doing so, growing the net asset value of our portfolio on a share basis. By doing that on a consistent and disciplined basis over time, we believe we can also build scale and diversification benefits that provide additional value at a portfolio level. To be clear, each potential investment will be evaluated on its own merits and must be value-accretive in its own right.
Any portfolio-level benefits are an outcome of our disciplined investment approach, not a driver, and will take time to accrue. Turning to page 15, our investment criteria and target parameters remain the same. We're focused on opportunities where we think we're better positioned. That is, projects in established mining jurisdictions in bulk commodities, base metals, and battery and energy transition materials. In summary, it's been a busy period with new assets adding new sources of revenue and optionality to the portfolio. We remain focused on our core principles of creating value for shareholders in a patient and disciplined way. With that, I'll hand back to the operator, and we'd be happy to take any questions.
Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star one-one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one-one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tom Prendville with Canaccord. Your line is open.
Yeah, morning, Julian, Jason, and Team. Thanks for the presentation. Maybe just a question on the restructure of the BD team you announced earlier this year. Just curious, what's the expectation of how this team's going to look going forward? I mean, is it growing? Is it shrinking, staying the same? First part of the question, and then just as part of that same announcement, I mean, you mentioned an increase in focus on offshore opportunities, particularly in North America. I mean, is there any particular reason for this? Does this imply that the number of attractive opportunities you're seeing in Australia and other developed countries is limited relative to North America? Just, yeah, just some comments on that, please. Thanks.
Sure. Thanks, Tom. Yeah, in terms of the restructure of the business development team, and I think it just reflects, so those two parts of the question probably go together to an extent. Certainly, we see a number of opportunities here in Australia, and we do, having our base here, we have a natural focus on some of those opportunities. But the reality is that the royalty and streaming sector is more mature, in other words, in parts of the world, and North America particularly. So we feel it's important that we have a presence in that part of the world, a sort of a presence in that time zone that enables us to both access some of those business development opportunities as well as be a bit closer to some of the capital markets in that part of the world.
Yeah, hence we now have Adam Davidson based out of Denver, and he's focused on leading our opportunities there. In terms of where this might go, I think there's always a little bit of tweaking potentially around the edges, but I think structurally we're pretty close to where we'd like to be.
All right. Yeah, no, that's clear, and then maybe just a quick follow-up, so just on the gold offtakes, those seem to be outperforming expectations. I think previously you've mentioned you may consider divesting these. I mean, what's the updated thinking there given the performance of those gold offtakes?
Yeah, obviously we're very happy with how they've been performing since we own them, but as you say, we said at the time that we made the acquisition that they're not core. We're not a precious metals-focused business. So we'd certainly consider opportunities to divest those. We'd consider all options, and we're still very much in that state if we find somebody or somebody approaches us who is prepared to pay more for them than we think they're worth to us, then clearly we would be happy to divest those. That's another lever we would have from a capital management perspective. But to be clear, as we've spoken about this morning, they are generating good cash flows, and so we're not uncomfortable retaining those if that turns out to be the best option for us.
Sure. That makes sense. Thanks, Julian. I'll pass it on. Cheers.
Thanks, Tom.
Thank you. Please stand by for our next question. Our next question comes from the line of Glyn Lawcock with Barrenjoey. Your line is open.
Julian, good morning. Can you just explore that little gold offtake comment a little bit more? I mean, actually, have you begun a process at all, or is it really more a case of you just going to sit back and wait? Just trying to understand, is your intention to run a process or just if someone approaches you?
So we're exploring all options. We're not, so we will certainly, as I said, we're exploring all options in that regard.
Okay. There's no process underway, then is what you're saying at the moment?
Look, we'll certainly consider if it makes sense to run a process. We would do that. But at the moment, we're just exploring all options.
Yep. And then just the payout ratio, you picked the midpoint between 50 and 100, which was good to see. And you gave a lot of explanation around how you came to that conclusion on the payout ratio. What about thoughts around deleveraging the balance sheet a little bit more as well through equity, perhaps now that the transaction's behind us, so we can get back to a more elevated fulsome payout ratio, or how are you thinking about the capital structure? Thanks.
So as you say, we took a number of factors into account. The board took a number of factors into account when making that decision, but looking to balance returns to shareholders with the strength of the balance sheet and the liquidity available to us. And so in that regard, we're very comfortable with where the balance sheet is. As Jason said in his comments, we don't feel under any kind of pressure with respect to the level of debt we have on the balance sheet. But yeah, we are keen to recycle that liquidity that we used in the Trident transaction. But the rate and the form in which we do that will really be driven by the opportunities that we see and the need for that liquidity. And as I said, always balanced with a desire to support returns to shareholders.
I'll just jump in. As Glyn reminded that the revenue from the gold offtakes alone is servicing the debt for the entire Trident acquisition. And as we look forward, we're going to start adding further new revenue sources, particularly with Thacker Pass when that comes online, and if there are capacity payments to come out of MAC as well. So we're not in any mad rush to be repaying that debt. We're servicing that comfortably. As Julian says, the opportunities will obviously feed into our thinking around that, but we've also got circa AUD 200 million capacity in our credit facilities at the moment right now.
Yeah. So when you're thinking about the next acquisition, if and when it comes across the table, is it more likely now to be using scrip rather than cash given the balance sheet? I mean, admittedly, you've still got liquidity, but how do you think about the next one?
Yeah. So obviously, it'll depend a bit on the nature of the acquisition, but as Jason said, we've got AUD 200 million under the existing facilities that are available to us. But that being said, we talk about a target leverage range of 0%-15%. We're getting towards the top of that where we are at the moment. So I think that if we're looking at substantial investments, then obviously equity would be one route available to us.
Yeah, and just a final question if I could squeeze it in. Just we all seem to miss the net debt. Was there more liabilities and debt sitting in Trident than what we could see on their balance sheet? Because your net debt was about AUD 40 million more than we all thought post the acquisition and the truing up of everything, or was it?
Yeah. So thanks, Glyn. We talked back in July of us having a total funding requirement of about AUD 330 million. Obviously, the headline purchase price was AUD 276 million, but we did have to repay Trident's debt. Now, they had net debt of AUD 33 million. That was gross debt of AUD 44 million and cash of AUD 11 million. So I saw in your briefing note this morning, you were looking at our cash flow, and that just gives you a sense of why the repayment was a bit higher than what you might otherwise think. But then there are also transaction costs in there too. So that got us to the AUD 330 million. And obviously, since we drew that down in September, we've obviously repaid a little bit of that. But we do have big swings in our working capital, just given the timing of the receipts of the MAC royalty revenues.
So that can make it a bit more difficult to pin down.
All right. So a lot of that working capital receivables you'd expect to come imminently to enable you to pay the dividend from cash, not debt?
That's right.
All right. Thanks very much.
Thanks, Glyn.
Thank you. Please stand by for our next question. Our next question comes from the line of Paul McTaggart with Citigroup. Your line is open.
Morning. So for those of us who don't cover the Lithium Americas Corp, I hear various comments around the quality of Thacker Pass, how difficult it might be, even the sheer scale of CapEx. And I know there's been a whole kind of funding a range of investments that have been agreed with GM, etc., and the DOE facility alone. How confident are you about Thacker Pass meeting phase one and then subsequent kind of targets? And obviously, we saw the increase in the resource base, which was pleasing, but I just wanted to get a sense of how you think about Thacker Pass. Thank you.
Yeah. So look, Thacker Pass is obviously a key part of the Trident acquisition. And maybe just to step back a bit to it, so it is a clear lithium project in northern Nevada. And we talk a bit you asked a question about the funding. Certainly, in the period since the acquisition closed, we've seen further de-risking of that funding. So it's about a $2.9 billion project or thereabouts, which is funded largely by a US Department of Energy loan, $2.25 billion, again, US dollars. That loan closed late last year. And the other key part of the funding is coming from General Motors, who has a range of interests in the project. So they have an offtake. They have an equity investment in Lithium Americas.
And then more recently, they announced a further $600 million investment that was linked to a direct investment in a JV, so at the project level. So very strong support from very well-funded funders. So from a funding perspective, it's in good shape, certainly in terms of the nature of the processing. I had the opportunity to go out to site at the end of last year. They've been running a test facility for several years in Reno. They are well advanced on some of the earthworks there. So very positive signs for the business in terms of that project getting up. As you say, we had very good news last month when they put out an updated technical report that increased the reserves and resources to the point where it's now the largest reserve and resource out there.
And as well as that increase supported an increase in mine plans, a doubling in production plans, and a significant lengthening in the life of mine. So to be clear, we see this as very much a world-class asset. It has many MAC-like characteristics in the sense of the long life, the world scale, tier one mining jurisdiction, well-capitalized backers, and very well positioned for its end markets as well. So a lot of real positives. And I think when we think about the exposure we've taken through Thacker Pass to lithium, if you're going to take exposure to lithium, this is a really high-quality way to do it. And that's an important part of how we think about our investments, is not just the underlying commodity, but really importantly, the quality of exposure we get through the projects that we're taking an interest in.
Yeah.
Clearly, there's been a lot of talk in Washington on a number of fronts around different funding. And you can never say never, but certainly in terms of that Department of Energy funding, our understanding is that once those loans close, they're effectively dispersed. Perhaps it's projects that still have conditional funding commitments that might be a bit more at risk. But we're looking forward to Lithium Americas progressing with that project, and they've indicated they expect to make a final notice to proceed on that project sometime early this year.
So that's probably the next big thing we should look out for. Okay. And you reckon it's early this year?
That's the guidance Lithium Americas has given to the market, that they expect that early this year.
Okay. Thank you.
Thank you. As a reminder, ladies and gentlemen, that's Star 11 to ask the question. I am showing no further questions in the queue. I would now like to turn the call back over to Julian for closing remarks.
Thank you. Thank you, everybody, for joining us this morning. We look forward to continuing to update you on the progress of the company. Thank you.
Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.