Okay, and welcome back to Sidoti's September Virtual Investor Conference. Thanks for joining us for day two. Before I introduce our first speaker of the day, I'd like to remind everyone, if you have questions, we expect some time permitting at the end of the presentation. Press that Q&A button at the bottom of your screen, type them in, and we'll get to as many as we can. I don't want to take up too much time this morning. Happy to welcome Ecora Resources and Head of Investor Relations, Geoff Callow. It'll be an interesting thirty minutes, and with that, let me turn it over to Geoff.
Thank you, Steve, and thank you, everybody, for joining today. I hope it's as pleasant where you are as the afternoon we have here in London today. I'll briefly take you through Ecora Resources. For those of you that don't know much about Ecora, we are a mining royalty business. You may be familiar with the names like Franco-Nevada, Wheaton Precious, Royal Gold, and some of the other large royalty businesses that are based out in North America. The difference between ourselves and those, we're applying the same business model, but the Francos and Wheatons are principally based around precious metals, so very much gold and silver. Whereas at Ecora, what we try to do is take that proven business model and apply it to a different commodity basket.
So we're really trying to apply it to commodities that will kind of be central to the energy transition and the rollout of electrification. So very much the cobalts, the coppers, the nickels, the base metals, the battery metals, and other things. We've got some uranium and things like that as well. And that's really our point of differentiation, because there's not really anybody else out there who is playing the royalty model in the same way that we are. So we think that's a real point of differentiation. I assume most people will be familiar with the royalty model, but I'll very quickly just give you a high-level overview in case it's the first time you've looked at it. Principally, its most pure form, we would agree to pay-
F inance a mine or give some financing into a mine and invest into a mine. And so it's not just at the PLC level, but at a specific project level around a specific mining project, and that payment is probably to help them advance to a feasibility study or get to construction financing or possibly for a brownfield expansion. In return for that investment, we get an agreement, we get a royalty for a percentage of revenue for the life of the mine. They're very long-term investments that we make, and they're taken pre any sort of CapEx, OpEx, or anything like that. We purely take it straight off the top line.
The benefits of the royalty model are many, but I've talked through some of those about not being subject to operating costs and capital costs on the right, but particularly in a time recently where we've seen a lot of inflation, and particularly commodity price inflation, that bodes well for our business model. Because while the mine operator itself will clearly, at times of inflation, see the price go up, but also their costs will probably increase. For us as a miner, if the price is driving the revenue up. Sorry, as a royalty company, if the price is driving the revenue up, then that benefits us because it just drops straight down to the bottom line, 'cause, say, we're not exposed to those costs.
So it's very good, it's a nominal business model, basically, and it can be very good in times of inflation. The portfolio that we've built, it's quite important, I think, to emphasize a couple of these things. Firstly, from a geographic exposure perspective, very low risk. 96% of our exposure is to OECD countries, effectively, predominantly in South America and North America and Australia. On the top right is a really important one for royalty investing. The cost curve positioning of our assets is very low, so I think 84% in the first or second quartile. And that's really key, say, for a royalty investor, because, if the mine's not producing, then we don't get any royalty income.
So we have to invest in mines that we think can weather a commodity cycle and will continue to produce, say, through that cycle. So that's a really important thing that we look at before we make any investments. And I'm pleased to say that, as you can see, the portfolio bears out the work that we've done to focus on that. The commodity exposure has changed dramatically, and I'll show you how in a little moment in terms of a slide that shows the evolution of this.
Effectively now we're about 76% base metals, 35%, the majority of that is copper, some cobalt and nickel alongside that, and then some vanadium, uranium, high-purity iron ore, and then we have a little bit of steelmaking coal. From an NAV perspective, although the revenue is still predominantly driven through steelmaking coal with an asset that's probably got about another two years of contribution before the mining moves away from our royalty lands. With what we think is a nicely balanced portfolio in terms of stage of development, clearly, it's a depleting asset base, so it's important we continue to backfill, but we've got around 50% of the NAVs in producing, around 45 in development, and the rest in very early-stage projects, which are much longer dated.
So we think that's a nice balance. And again, I'll show you how that's evolved from where it was a few years ago, when it was principally one asset and about 80%-90% producing, sorry. We've made a real effort to diversify the portfolio. And the key thing here on this slide at the bottom is the operating partners. We're a small-cap company now. We're a sort of $200 million market cap business, but we don't provide the sort of operating risk that you would get if you were investing into a mining company that was a $200 million market cap.
The operators of our projects include the likes of Vale, BHP, Capstone Copper, Cameco, so some really well-known, you know, best-in-class names there that are, and so the operating risk is not a stat that you'd normally associate with a small cap. It's very much around the large cap companies. I won't dwell on this, but this gives you an overview of our production base. These royalties, they are all in production. They are a variety of commodities, as you can see there, and a variety of different structures. So they've got long-dated lives, that's very important. You can see there that most of them stretch out for well over ten years, and probably have the potential to be extended further beyond that.
What I would draw attention to here is, let's say, the Kestrel steelmaking coal royalty that you can see, sort of two-thirds of the way across the bottom of that slide. Historically, that was the asset that this business was built off the back of. If you looked at the business ten years ago, it was principally the Kestrel steelmaking coal asset and nothing else. We didn't have any other royalties that were in production, really, it was just that royalty as the principal asset for the business. As I mentioned a moment ago, that royalty is moving out of our private lands in about two years' time.
The real challenge for the business was to build an income base and a producing base that would replace that Kestrel income when that did move outside our lands in two years' time. Very much over the last sort of seven, eight years, the focus has been building in and adding these royalties that you can see on here. One, prove that we could apply this business model to this commodity basket, and it could work outside precious, and b, as I say, to successfully replace the Kestrel income, and we think we've done that now. Having replaced the Kestrel income, we then turn our attention to growth, so to look out beyond sort of to the second part of this decade and see how we could grow the income profile.
And you can see here on the sort of lighter blue, the two-thirds of the left and the bottom, is our what we'd call nearer stage, kind of firmer development opportunities. And then on the right are some longer-dated ones, which are probably looking out into the next sort of 10 years plus before they potentially come through. A couple I'd draw your attention to on the bottom, really. Nifty is a copper one in the middle there in Australia. That's a brownfield restart. With the copper price where it is, a team has just come in and raised some money to move that project forward. So that could be producing copper again for us very early next year, with all being well.
The two big development projects we have on the left there are West Musgrave and Santo Domingo. West Musgrave, to be honest, has been set back a little bit. This is a project that a company called OZ Minerals were operating and has started to build the mine. It's a nickel copper mine in Australia. BHP acquired OZ Minerals and carried on the construction of that mine, and then earlier this year, they made an announcement. They integrated this into a broader West Australia nickel division at BHP, which has been loss-making for some years. With the nickel price coming under pressure due to the expansion of supply from Indonesia, BHP decided they'd pause this project and the construction of this project and review it again in twenty twenty-seven.
Now, our initial assumption was this didn't come on stream until 2028, so actually, if they review it and bring it back in 2027, it's still probably gonna be back up in production and income-generating for us towards the end of the decade. But that could be a sort of $15 million-$20 million a year of additional revenue for us when that one's on the stream. So we'll keep an eye on that. We're slightly disappointed, especially as BHP stated earlier this year, that this project was economic on a standalone basis, even at the current nickel prices. So it seems it's really been sort of caught up with the broader division that it's within, as opposed to judged on its own merits. Contrasting that, Santo Domingo, you may well be familiar with Capstone Copper.
It's a, I think, Toronto-listed business. It's just completed a mine 30 km away from Santo Domingo, on time and on budget, and this is very much the next project, next cab off the rank for them. A technical report was published earlier this week, and the mine is moving forward with a view to FID next year, and it's about a three-year build. So we'd start to expect to see some income coming through from this one, all being well, in 2028. And at current copper prices or copper price forecasts, this is looking at potentially, you know, $30 million to us when this comes on stream. So this is a really material asset. And to give you some context, we did sort of $50 million-$60 million of income last year.
So these are really the kind of platform assets that will come in and really replace that Kestrel and see growth well above and beyond that. I won't dwell on the others there, but there's some other assets as well, which have the potential to come into production in the next four to five years and contribute as well. But in the interest of time, I can, I can leave those, and if anyone's got any questions, I'll be happy to pick on them at the end. I mentioned a couple of slides back, I would see how that portfolio would evolve, and you can see on the top right-hand side there, the NAV and the portfolio breakdown in 2015, when it was very much dominated, as I say, 83% by that, Kestrel, coking coal royalty that we have.
You can see the contrast to that slide I showed a few moments ago, or that pie chart I showed a few moments ago, which has how it's balanced today. Whilst we feel that is much better balanced today, we need more depth. We have eight producing royalties now, it'd be great to have 16. We've got four or five near-term developments, it'd be great to have 10 near-term developments. We think the real challenge for us to drive this business forward now is just further diversification. As a royalty company, we think that royalty companies that have that diversity, which lowers the risk profile of the investment, just drives a more premium rating. We're very much focused on that at the moment.
On the left-hand side, you can see how some of those assets we've acquired in the last few years, such as the development projects I talked about a few moments ago, have really driven a steep increase in the NAV of the business, yet the income hasn't come through from those assets yet. We're really, at this point, I would say, of transition, where this Kestrel royalty is rolling off, and we're waiting to see these other ones sort of come through. That value that is currently in NAV is unlocked and comes through, and we see that at the income line. This slide really then shows how that could play through. I'll just give you a minute to get your eye in and talk you through some of the things here.
So the darker blue or teal color is the income that we produce today from the non-coal assets. We have a good production base from that, but it needs to grow further. The lighter blue or turquoise is the income we expect this year on the analyst forecasts from the coking coal. So that's about 40 million this year. Going down over the next couple of years, although next year, actually, the volumes we're expecting are higher than the volumes we got in twenty twenty-four. So that's merely a function there of more conservative coal price forecasts in the analyst numbers. If you assume a consistent coal price, and I think we realized $222 a ton in the first half of the year.
If you're in and around that, then the amount we generate should be north of that 2024 column for next year. What you see is a gradual ramping up of the dark blue over the next few years, and that's really driven by something I'll look at in a moment, which is really important, and that's the expansion of Voisey's Bay, Vale's nickel mine in Newfoundland, where we have a cobalt stream. The other chunks there, you can see on the right, are some of these projects that were on the slide I showed a few moments ago, that we're expecting to come through in the next few years.
So that really has the ability to take this from a business that, if you went back, six or seven years, was generating, the vast majority of its income from, from the light blue, from Kestrel. We can see a medium-term future where none of that income is coming from Kestrel, and we're generating a lot more than we were before. And the key with these, as I say, for a royalty company, is these are kind of 15- 20 year income streams, and they're very predictable. So we feel like we're, we're well-positioned for the future, but we're a bit of a, a transition point at the moment. And Voisey's Bay is very important in that, 'cause that's the, the big asset within our production base today that's ramping up, and maybe I'll talk through that, over the page.
Voisey's Bay is, I say, a cobalt stream, so here, the difference to a royalty, we actually take physical delivery of cobalt, and then we sell it on to a trader who markets it for us. The investment we made in 2021 was for a part of an underground expansion of this mine, and it's been a little bit delayed, 'cause the supply chain got impacted by COVID, so it's probably a little bit behind where we would have liked it to have been. So the ramp-up in this, I think, is very important to give the market confidence that we can replace that coal income. We're really pleased to say that we're starting to see that ramp-up happening right now in the second half of this year.
Last year, to give you some context, we had eleven deliveries of cobalt. This year, we're expecting 12-16, and you can see on the blue call-out box on the right-hand side, as this ramps up, next year, we should get between 20 and 28, and then when it gets towards a steady state, at some point in 2026, we'll be getting 40 deliveries of cobalt per annum. So there's real material growth in this asset for us. And that's what you're seeing there. These are a slide that Vale put out a few months ago at an online presentation it gave, focusing on this mine, and you can really see there the expansion over the next two to three years, and the darker blue is from the underground mine.
So you can see really how the underground mine is starting to grow at the expense of the open pit, which is very good, 'cause the cobalt is much higher grade from the underground than it is from the open mine. So that, I think, will give the market confidence. The second half of the year, to give you some context, in the first half of the year, we received four deliveries of cobalt. The second half of the year, so to date, from what, two and a half months into the second half, I think we've received four, and two are on the water being shipped at the moment.
We're already tracking ahead of where we were for the first half of the year, and I think quarter by quarter in the next sort of six to twelve months, we can give the market confidence in that. All the activities are largely complete now. Our team were in the mine last week, actually, on a visit, and there's two sections to the underground mine here. Reid Brook is one, and that's now complete. Eastern Deeps, as the other one is called, has one piece of kit that needs to be commissioned, but that's all on track for November, December this year. We're really confident about that, and we think that can really underpin the business, and we really think we're at a bit of an inflection point in terms of how we are perceived going forwards as a result of this.
The reason that's very important is what's priced into the shares today, and well, I'm pleased to say the share price is 70p today. It's gone up a little bit in the last few days. But this is the analyst consensus, and what you can see here is we still trade considerably below producing assets. That's probably partly because the met coal is still the main driver of income, so we get rated on a met coal multiple, which is lower than a base metals and a battery metals multiple. So what we'd expect to see over the coming years, as the composition of the income changes, is that we start to trade more like a battery metals company or base metals company, and we could see quite a lot of room for multiple expansion there.
As I say, at the moment, we think it's a very good entry point. We're trading about 0.4 times NAV, and to give you some context, the kind of peers: the precious peers are way above that, but the one or two peers that do something similar to us, companies like Deterra in Australia or Altius in Canada, are trading at just over one times. So we're at a real discount to our peers, and we think if we can close that, there's a real opportunity for a re-rating as well. We think that there's definitely ways we can see to close that gap and improve that rating. We're still looking to add more royalties.
I think from a balance sheet perspective, it's worth touching on here, we have net debt of about $85 million, which has probably peaked in the first part of this year. We have a $150 million dollar RCF, and a $75 million dollar acquisition facility on top of that we could call upon should we choose to. So we have plenty of borrowing capacity. I think we would potentially look at our focus in the near term.
I'd say we've got these cornerstone royalties that are coming on later in the decade, so really, our focus in the near term is adding very much production royalties or very near-term income-producing royalties that can add income in sort of 2025, 2026, while that Voisey's Bay is ramping up and while we're waiting for some other those assets to come on stream, but base metals will be at the core of our portfolio, and you can see our commodities universe on the right there, those that we have and some of the others that we don't have and that we'd like to be. Some catalysts going forward. I think the top one here is this underground ramp up is a really important one for us to watch out for, as I say, at Voisey's Bay.
Santo Domingo, they're looking for, obviously, a financing partner and then sanctioning that project next year. The other one I'd perhaps pick out here is Piaui, which we haven't talked about much, but it's a nickel project in Brazil. We have the right to put more money into that should we choose to, and that would more than double our royalty. But should we choose to stay where we are, it'd still generate probably between $5 million and $10 million, depending on your nickel price. And the operator there, a private company called Brazilian Nickel, is trying to close out the financing for that at the moment. Hopes to do so by next year and start construction next year. And that will be income generating in 2028.
So, again, one of these options that we've got over the coming years. With that, I'll kind of surmise and hand over to questions. So yeah, we think we've got good underlying production volume growth, as I said, in 2024 on 2023, and then next year on 2024. So at constant prices, we'd expect to see income growth next year. The balance sheet's in a good position, 1.4 times levered, no firm capital commitments. We do actually. We don't think royalty companies should carry lots of balance sheet exposure for investors, so we would look to de-lever over time. But we use that very much as a, as an acquisition facility, really, and we only pull the trigger on things, let's say, when we think we've got a clear line of sight to de-leveraging.
We have the leading copper growth portfolio. I haven't gone into that in detail, but if you looked out to the next decade, there's a constant kind of sequence of copper royalties that should be coming in at reasonably frequent intervals out to the middle point of the next decade. I've talked about the entry point being attractive, high-quality operators, and we see a very busy business development pipeline. The factors that have weighed on our share price have frankly weighed on other operators and are creating a lot of opportunities for us today. So we can't promise to close out on any of those, but certainly, the number of files that we're seeing are up on those that we'd seen previously. And with that, I'll pause for breath and see if there's any questions?
Thanks so much, Geoff. We do have a few questions in the queue already, but I'll remind everyone, if you have any questions, if you joined late, press that Q&A button at the bottom of your screen and type them in, and we'll get to as many as we can. Just one, you know, some people who are new to the story, if you could just walk through how your royalties are generated. Is that a mix of price and production for the mine you are invested in?
Yeah, for the mine we're invested in, it's very simply, it comes off revenue, so it's very much price times production. There are some small costs that come off, which are generally sort of some sort of small marketing or transport costs, but effectively, it's simplistically put, those are generally sort of a very small percentage. So simplistically put, it's as simple as production times price.
Excellent. So when we think about, t here's a number of questions, as you'd expect, from regarding your portfolio management. A lot of it's tied to what you're looking for, what you would add, and if you can walk people through how you weigh the operator versus the market versus the commodity, and do you go more bullish or bearish for certain commodities at different times?
I think that's a good question, and there's some various components to that, so I may-
Yeah
Break them off. In terms of royalties, I think, I guess one of the benefits of being across the multiple commodities is that as it is a cyclical business, the worst thing that we can do if we're a royalty business is enter at the top of a price cycle-
Yeah
Because then we're stuck with that for 20 years. We're not like an equity investor who can sell the - well, you can sell-
Yeah
But we'd rather not, 'cause they're hard to find, good royalties. So one of the reasons we didn't partake in lithium over the last few years is when it got up to sort of $80,000, we didn't think that was a sort of cyclically sensible place for us to make a twenty-year bet. So we will then switch to other commodities where we think we can enter on a relatively low point in the cycle. If you look at the copper, for example, Santo Domingo, we came into that at about $3.30, $3.40 was our price assumption for that long term. And we think getting into copper at that sort of level is something we do all day long. You know-
Yeah
We think that's a really good price to enter copper in. But that's what we're looking for, really. It's looking, saying, "Right, where is this at the kind of relative low point in the commodity price cycle?" And if so, that just, w e're not gonna pick the bottom, but it gives us the comfort that we'll have asymmetric upside, and as we go through cycles, we'll benefit. Cobalt, I guess, is the one which is at the bottom of the cycle at the moment. We assumed about a $22-$23 per pound long-term price for cobalt. After we assumed that stream, it's been up to $40, and it's now come back down to about $16.
So on balance, while it's not great when it's at 16, we had a period of time at 40, and we think 22 is probably not bad positioning for the long term. When cobalt prices do come back, we'd expect it, again, through the cycle over those 20 years, to more than beat that price on average, particularly when you think of the inflation effects that will start to kick in with time as well. So that's how we think about it from a pricing perspective, and then we'll switch between the commodities that kind of are looking kind of at cyclical lows. On a project basis, it's always driven by the quality of the ore body and the cost curve.
So cost is really important to us, for the reasons I talked about at the start, making sure these are projects that will be able to be in production through a commodity price cycle. And then it really comes down to, say, what we might do a little bit now the portfolio is more diverse, is there's an interesting nuance between if you see a top-tier project in a kind of more risky jurisdiction, are you better to kind of take a quality project with a world-class ore body in a kind of perceived to be riskier jurisdiction, as opposed to taking the twentieth-best project in Canada? And again, that's a function of ticket size as well.
We wouldn't spend $100 million on something like that, but for a $5 million-$10 million investment, we may be prepared to do that into something which is a top, top quality resource, and we've just done that in rare earths. We've spent $8.5 million on something called Phalaborwa, a rare earth project in South Africa, operated by a company called Rainbow. It's not really mining, it's the rare earth elements exist in existing stacks from an old phosphate mine, I think.
Yeah.
So it's not. You're actually just processing the stacks that are already there.
Yeah.
So it's low risk from that perspective.
Yeah.
The rare earth elements have been activated, and so we see the risk profile of that as being something which justifies us going into South Africa for an $8.5 million investment, 'cause we think it's the best project of its type outside of China. So hopefully that gives a little bit of an insight.
Yeah, it does.
To how we think about new business. And some of these projects, you know, it's a long game. You know, some of these projects, we've been talking to people for five years before we get the opportunity to actually invest and pull the trigger.
Can you talk about how your mix, I think you indicated that the investment thesis, a key point will be, your mix shift. Can you talk about how that mix will shift away from thermal coal towards some other metals?
Yeah, well, it's met coal, I should say. It's not thermal coal-
I'm sorry, met coal.
Just to be clear. So we disposed of our thermal coal a few years ago. Yeah, as we look out now, copper is gonna be the big, big, big thing, and base metals will be at the heart of it, as I say, the 76%. As we see those copper projects come on stream towards the end of the decade, we'll probably move up to more like 50% copper.
Okay.
And I think, you know, that's as we look forward, everything we're looking at really is focused on those commodities I showed on the.
Yeah
I'll go back to the slide, on that slide there. So this basket on the right-hand side, there'll be things that aren't in there. Lithium is the obvious one that people say to us that we don't have, and I think I've touched on the reasons why-
Yeah
We haven't done that in the past.
Yep.
We continue to look at opportunities for lithium, but we see compelling opportunities elsewhere. If we could, we'd love to get some more producing copper.
Is there many opportunities there? 'Cause there's such limited new copper coming into production, right?
We see some.
Okay.
It depends. Again, it's a function of how available other forms of capital, I think, are partly. And at the moment, when other forms of capital aren't necessarily readily available, it can work very well for us as a royalty company. And particularly, we find companies that have founders with large shareholdings themselves. The royalty project is not dilutive because it's not equity, and it doesn't sit on the balance sheet. So actually it's quite a neat fundraising solution, particularly for people who've got a very large ownership percentage and don't want to be diluted down.
We do have a question specifically around what you consider the greatest hurdle to your growth, whether it's the number of opportunities that are out there or the costs?
I don't think it's the number of opportunities. I think we see plenty of opportunities. I think at the moment, the challenge for us is seeing these. That, frankly, the share price is probably one of the biggest impediments right now to growth, because with a-
Yeah
With a trading at big discount to NAV, we can't use our equity as currency. So therefore, your sort of firepower is rather limited. So I think that we're very focused on trying to do everything we can to get the share price back up to a level where potentially, you know, if you're issuing equity at one point two times NAV to buy something at one times NAV, T hen clearly it works very well.
Yeah.
We can't do that.
[Crosstalk] But if you're not, if you can't-
We can't do that right now.
Right.
So we're probably a little bit constrained in terms of how we can operate, but we can always syndicate things and bring in partners. But that's probably more of a challenge for us at the moment until we get these other projects on and get our income up to the kind of the levels we've talked about at the back end of the decade.
I think you indicated, if you can just walk people through, and we don't have a ton of time, but we're getting questions about when Kestrel rolls off and then the-
Yeah
The timing of replacements.
Kestrel, let's go ahead. Kestrel, we'll do about 2 million tons this year, for us from Kestrel. Into next year, we expect that to be about 10% higher, probably so, but certainly at the same level, if not a little bit higher in terms of the volumes. 2026, probably about half that, so over 1 million tons still. And then we'd expect after that, through to the end of the decade, it'll be probably more or less 400 or 500 tons, something like that, 1,000 tons, something like that. So much smaller beyond 2027. At the same time, Voisey's Bay should be fully ramped up by end of 2026. So that will be a big contributing factor to replacing Kestrel, and then we're looking at these other projects coming on kind of 2027, 2028.
Okay. So if we can wrap this up, you have replacement volume coming on from probably commodities that are maybe more appealing to investors. Your mix improves. You're trading at a discount to NAV right now. Most of your investments are in pretty low-risk geographies. Anything else you want to add if people start thinking-
No, see-
About this as an investment?
You need to get my job, Steve.
Picked it up quick in twenty minutes, but no, I know it's a lot, heck of a lot more complicated.
It's a simple story. It's a simple story.
Okay. Excellent.
Thank you for your time, everybody.
Geoff Callow from Ecora Resources. Thanks so much, Geoff. Appreciate it. Hopefully, people-
Thank you
Learned a lot in the last half hour, and hope everyone enjoys the remainder of the conference. Thanks, everyone.
Thank you.