Good afternoon, everybody. Thank you for joining us on the Ecora Resources call to discuss our acquisition of a copper stream over the Mimbula mine. My name is Geoff Callow. I'm the Head of Investor Relations at Ecora. I'm joined here today by Marc Bishop Lafleche, Chief Executive Officer, and Kevin Flynn, our CFO. We'll take you through some slides, and then there'll be time for some questions at the end. If you'd like to submit some questions, please do so using the functionality in the toolbar below in the webcast. I'd just like to draw your attention to the disclaimers at the back of the presentation. All the usual disclaimers apply regarding forward-looking information, and the presentation is available on the homepage of the website. With that, I'll pass over to Marc to kick off the presentation.
Okay, good. Thanks, Geoff. Good morning. Thank you for joining us for our call today. As we announced earlier, Ecora has entered into an agreement to acquire a copper stream at Moxico Resources Mimbula Copper Mine. The upfront consideration will be $50 million, and we're frankly excited to announce this transaction. We really do believe on all metrics it's the perfect next deal for Ecora. First of all, Mimbula is a low-cost mine, which is in production, a track record of historical production. A brownfield expansion is currently underway to increase production capacity by a factor of approximately four, and the acquisition will also significantly increase copper as a percentage of Ecora's revenue mix. Furthermore, it'll also enhance the front end of Ecora's royalty sector-leading organic copper growth pipeline.
Moxico is led by an exceptional management team who have seen this project from conceptual stage into production and now overseeing the Phase II expansion of the operation. These folks have experience at the blue-chip mining companies you'd expect. The stream is expected to drive immediate earnings and free cash flow accretion from year one, and in combination with our wider producing portfolio, contribute to material deleveraging in the next 12 months-18 months. Last, the acquisition is bang on in terms of our strategy to target an acquisition as our next deal that would be in production that would immediately contribute, or in the very short term, contribute to diversifying and growing our short and medium-term income profile. Turning now to look at the transaction in a bit more detail, starting with Mimbula first. Mimbula, as I mentioned, is a producing open-pit copper mine.
It's located in the Copperbelt Province in Zambia. The operation ranks very well on global cost curves, currently within the lower half of the second quartile and following Phase II, expected to be within the lowest quartile of global copper operations. The operation, as I mentioned, has a track record of production. The operation last year produced 14,000 tons of copper, and this is done by a heap leach and SX-EW circuit. The Phase II expansion will lead to production capacity of approximately 56,000 tons a year. Ecora will acquire the stream for $50 million, and the stream entitlement is tiered based on calendar year production levels. On the first 15,000 tons of copper production, Ecora is entitled to 4.7% of the copper units, and that equates to EBITDA of approximately $5 million.
Incrementally above that, on the next 15,000 tons-30,000 tons of copper production, Ecora's entitlement is 2.5%. That equates to stream EBITDA of approximately 2.5%. Finally, on any production in a calendar year in excess of 30,000 tons, Ecora's entitlement is 1%. In total, if once fully ramped up, the stream EBITDA would be expected to be just under $10 million up until the step-down date, whereafter Ecora would be entitled to 1% of any cathode production. I think there are two real key takeaways on this stream structure. Number one, this effectively front-loads the stream cash flows to the initial six to seven years. Number two, the structure, while on a blended basis, is equivalent to a stream entitlement of 2.3% of copper production.
It actually reduces the expected volatility of the copper units in any given year and thus the expected volatility of the stream EBITDA and the contribution to our overall earnings profile. I'll now hand it over to Kevin to discuss the transaction funding in more detail.
Thanks, Marc. Hi, everybody. As Marc mentioned, this transaction ticks so many boxes for us. The cash flow profile that we're acquiring, especially as it's front-weighted to the formative years, ensures that the financing of the transaction and the leverage that we're taking on is both affordable and, given the ramp-up that we expect to see from the rest of our portfolio, which began at the beginning of the year, provides a clear deleveraging pathway, which I'll touch on in a minute. In terms of the financing, once again, delighted to receive the support of our existing lenders, evidenced by the upsizing of our facility from $30 million by $30 million- $180 million. This really reflects the additional revenue that we're acquiring and the diversification that this provides to our income profile. This ensures that we continue to retain good financing flexibility for future opportunities.
In addition to the upsizing to the facility, we have also taken the opportunity to extend the term of our facility by 12 months, which was an option which we had in our existing facility. Over the course of this time, there are no fixed amortizations or step-downs associated with our facility, which again provides further financial flexibility to us going forward. In terms of pricing, this has increased slightly at the higher end of the ratchet, but still very competitive, beginning at 2.25%-4.5% over SOFR. As part of the acquisition, we have made some slight tweaks to our RCF facility, which mainly reflects the volatility we expect to see in terms of Kestrel production when it is either within or outside of our private royalty area.
This calculation allows us to normalize the Kestrel income at any one particular covenant testing period by effectively taking the average of the previous six quarters and annualizing this. This should ensure a much smoother leverage covenant calculation at any one given quarter end. In addition to this, we have agreed with our lenders a reduction in our interest cover ratio from 4x-3x , reflecting really the new higher base rate interest environment that we currently are in. Looking at the impact of the acquisition on our balance sheet, we have included an illustrative table at the bottom of the slide to kind of show our net debt profile at the end of the next two financial years based on the latest consensus pricing when applied to the expected volumes from our portfolio.
On a pro forma basis, after the transaction, we anticipate net debt to be around $126 million. This, based on consensus pricing, could reduce to $100 million by the end of this year and by a further $30 million or so the year after. Given the upsizing of our facility to $180 million, this should ensure that we retain good financial flexibility to continue our focus on further accretive acquisitions in the coming periods. Back to Marc.
Okay, great. Thanks, Kevin. I think we've touched on a number of the key points by describing and outlining the Mimbula mine. I won't dwell too long on this slide. I think a few key takeaways, as I mentioned. First of all, I think whenever we look at our investment opportunities, cost curve positioning is really at the front end of our due diligence. This asset is very well located and should be very well positioned to generate strong cash flows throughout the commodity price cycle. The operation is located in a very well-established copper mining area in the Copperbelt Province in Zambia. It's in the name. The operation, as I mentioned, saw first production in 2022. We have, and behind us, a great track record of production and operation capability.
Phase II, which is currently underway, is expected to lead to an approximately four-fold increase in production capacity, which would take production capacity to around 56,000 tons per annum. Turning now to the copper market outlook, I think for most of the folks on this call or in and around the mining sector, the basis for a really strong fundamental copper outlook is generally well understood. While we will not belabor this slide, the one point that we really think is worth mentioning is that despite the fact that everyone in this sector seems to know that a lot more copper will be required in the future, what we see is a lot of M&A or consolidation. The reality is that does not actually bring about more incremental copper production, which in and of itself, in many ways, further strengthens the outlook for copper.
Turning now to the next slide. When we step back and look at this, first, we've outlined here a slide demonstrating our copper pipeline. We think that this acquisition really enhances the front end of that sector, royalty sector-leading organic growth profile. I think the Mimbula piece adds immediate growth, medium-term growth, and that really contributes in the next couple of years, in particular in the context of the West Musgrave royalty now being pushed back. I think the second point to note here is that over the next decade, we just have this consistent growth pipeline that is expected to take our attributable copper Eq units from approximately 2 million pounds in 2024 up by almost a factor of 10million- 20 million lbs. Turning to the last slide, what does this mean in the wider context of Ecora?
I think there's a number of really key takeaways here. First, we believe that on the back of this transaction, this acquisition really cements copper at the core of our portfolio, with copper now exposure representing just under 50% of our estimated NAV and beyond that, base metals just under 80%. I think our portfolio remains very heavily weighed to OECD jurisdictions or jurisdictions generally with histories of mining and mining cultures. Our portfolio is very heavily weighed towards assets or projects that are located in the first and second global cost quartile. I think what that means is the assets that are in production are expected or far more likely to stay in production and generate the royalty cash flows we anticipate, or for the development projects, far more likely to be brought into production.
Our stage of development remains very heavily weighed to assets that are already in production, and thus the portfolio in itself offers a relatively more de-risk weighting in the context of our asset base. With that, we'll happily turn it over to any questions that may add to a Q&A session. Thank you.
Thank you. Just by way of reminder, if you have any questions, please submit them using the app. We have a number in already. First couple from one from Marina at RBC. The deal has a very attractive IRR at current spot prices. Could you give us a bit more color on how competitive the process was? There is another individual who has asked what the IRR of the transaction is.
Okay. I think the first question here, I mean, any IRR calculation will, of course, be subject to a number of assumptions, the most obvious being the copper price. On a consensus outlook, the IRR estimate, as we have it, is in the range of 8%-9%. Then depending on someone who's more aggressive on copper, it's more likely slightly above 9%. In terms of competition, I think on this one, our key competitors were not actually from the royalty and streaming sector, but from alternative sources of financing, whether they be equity, debt, equity-linked products. I think ultimately, this transaction really demonstrates the merits of the royalty model. The royalty, Moxico more generally, is a rapidly growing business.
Moxico is one aspect of Mimbula, excuse me, is one aspect of Moxico, but Moxico is also developing in partnership with the Ajlan Brothers, the flagship mining project in Saudi Arabia. Therefore, this funding, really by limiting it to Mimbula, is really a creative way of growing. As I mentioned already, it just hammers in the merits and the attractiveness of royalty financing.
Thanks. Another follow-on question from Marina. What do you think are the main challenges Moxico will be facing in ramping up production to the 56,000 tons per annum?
The project is now already well underway. The project, in the scheme of mining brownfield expansions, is on the relatively simpler side. I mean, ultimately, this is an open-pit operation and an SX-EW circuit. The project is expected to complete in mid-2026, and the project is materially advancing towards that timeline as of today. There is nothing that imminently jumps out to us as an immediate source of concern or for delays. I think in the event of delays, ultimately, we should consider the stream structure, where the stream structure is very heavily weighed towards the lower end of production. Furthermore, the lowest stream ratchet is effectively production that has already been achieved historically.
That segues into a question from Richard Hatch at Berenberg. What level of conservatism do you think is being built into the ramp-up schedule for Mimbula?
Yeah, I think the way that the figures for 2025 and 2026 certainly have an element of conservatism in them. There is certainly potential to see actuals beat these levels of the 15,000 tons-20,000 tons, for example, that's expected in 2025.
Another question from Richard Hatch. What level of price weakness, very well for you, Kevin, what level of price weakness would you need to see before covenants become a concern?
Yeah, I think our base case is reasonably well protected, certainly on consensus and even below that. I think 10% below consensus still shows good covenant compliance. More importantly, I think what really gets us comfortable with this transaction and being able to fund it from the balance sheet really is what we've been talking about for the last two or three weeks with a lot of positive momentum across the rest of the portfolio in terms of expected volume growth at Mantos and Voisey's Bay. I think if you look at where commodity prices are currently trading generally, those commodities that impact the group, I think there's probably more risk of upside to those commodity prices than downside, especially when you see what's happened recently with announcements from the DRC in terms of cobalt.
I think, yes, you are always susceptible to shocks in the portfolio when you've got a level of leverage, but that's why we've tried to restructure some of the covenant calculations, especially around the Kestrel calculation to kind of deal with this. We're comfortable on our base case, and there's reasonable protection on the downside. Especially then, Richard, when you take into account the fact that the cash flows from the stream are reasonably front-loaded, the payback on the investment is short in the context of the royalty and streaming sector. I think that in and of its own right gives us a lot of assurance as we go forward.
Kevin, while we have you, another question on the debt. How does the acquisition affect the reduction of the net debt, especially bearing in mind that the contribution from Kestrel is clearly falling off probably from next year?
Yeah, absolutely. That is a key reason for the acquisition, to acquire different sources of cash flow. I think when you look at acquiring assets, if they are income-producing and have got a reasonably quick payback period, then that naturally lends to being able to leverage those acquisitions. The Kestrel mine life within Ecora's private royalty area is very well known. We have got very good visibility over what that is, what volumes we expect. That obviously supports our deleveraging profile, as we have illustrated in the table.
Thanks, Kevin. A couple of questions here, which I'll kind of aggregate because there's a few of them on a similar theme. We've partly touched on this in the presentation. What's the general outlook for copper in our minds in the next 12 months- 18 months? It's almost to be copper price being very near to an all-time high. Do you think you're buying at the top of the market instead of the bottom? Aren't commodities such as lithium and manganese more at the bottom of the cycle and potentially more attractive?
Yeah, there's probably two parts of that question. The first on the copper outlook more generally, I think copper has performed relatively well on a relative basis to the commodity complex. The fundamental drivers for copper in absolute terms at these price levels appear to remain very compelling. The second question around relative commodity prices, I think there's also a question of momentum. I think at this point in time, it's a bit unclear, frankly, as to when lithium prices or manganese prices are expected to recover.
We've seen some supply curtailments, but what we've also seen is a number of integrated producers of those commodities, in particular lithium, perhaps capture less margin upstream on the mine, but capture the margin downstream on the battery pack sales or even further on the EVs, which raises questions as to how long prices may go on lithium, for example, before they recover. We are absolutely very comfortable on copper. Between the two, at this time, with a high degree of conviction, I believe that copper is the right place to allocate capital on a relative commodity selection basis.
Thanks, Marc. Again, a couple of questions on a similar subject. We'll aggregate. Piauí, does this transaction mean that the timeline on Piauí, moving further to the right, do we still plan to finance Piauí, and if so, how? I'll bundle that with a question which on a different asset, but we're looking at other assets in the portfolio. Is there any indication from BHP when West Musgrave is likely to feature in their plans again?
First on Piauí, I think on Piauí, there's not a decision that is necessarily required to be taken immediately. It's not a decision that would be incremental leverage today. There's an expectation that our balance sheet should fairly rapidly deliver until such time that the decision on Piauí, we would be done based on the merits of Piauí. I think we've been pretty consistent in the past that in any acquisition, we'd be very reluctant to add substantial leverage to the degree we didn't see a path to deleveraging in fairly short order. I think that same logic would apply at the time of the Piauí transaction if and when it came to us for a decision point.
West Musgrave?
In terms of West Musgrave, BHP today has not provided any updates beyond public disclosure that a restart date will be considered and reevaluated by early 2027.
Thanks. A couple of answers. Capital allocation points. Would buybacks at these prices have been a better use of capital than with this transaction? What are our priorities for the cash flows generated from this investment?
Yeah, I think there's always a trade-off, of course, between the relative merits of per-share growth on the buyback or achieving a diversification and reducing the expected volatility of income. In this instance, on this specific transaction, we felt the merits of the royalty and the stream acquisition were superior.
Second question was.
The use of the cash flows.
The use of the cash flows. What were the priorities for the use of cash flows?
Thank you, Geoff. In terms of priorities for use of the cash flows, I think Kevin's touched on that. I think the base case, as we see it today, is to utilize these cash flows in combination with the cash flows generated from the wider portfolio and seek to delever the balance sheet. Historically, within Ecora, taking on leverage to acquire royalties is something we've done a few times in the past. In and of itself, it's not new. It has always been done on the basis where we felt there was a fairly rapid path to taking down debt in the short term.
Is there still a plan to backfill other metals that we don't currently own, such as lithium, for example? That's just as an example.
Yeah, absolutely. By no means are we seeking to become a royalty company in a single commodity. What we've continued to seek to achieve is a royalty vehicle that provides exposure to the critical minerals suite, whether those critical minerals are driven off of urbanization, electrification, digital infrastructure, energy transition. The outlook is still quite positive on a holistic basis. It just so happens at this time, the most attractive opportunity in front of us was a copper addition. Having copper at the core of our portfolio is attractive, just given copper is such a large market. It's historically been prone to less volatility than some of the more niche commodities. By no means are we ignoring opportunities that may arise in the other commodity set.
By way of reminder, if you'd like to submit a question, please do so through the toolbar. Just to come back to Mimbula more specifically, any expectations when the transaction will close and which quarter did we expect to see revenues from?
Transaction is expected to close in the next days. We anticipate seeing contribution from Mimbula from Q1 2025 onwards.
Thanks. Final questions in at the moment, which I'll again, I'll aggregate with a number of questions on this theme. Could we give a sense of what the exploration upside program is from Moxico at the Mimbula mine? Potentials there for extending the life of mine further, which would obviously give us some upside exposure.
At this time, the Moxico team is primarily focused on executing the Phase II expansion. That being said, the properties certainly demonstrate the prospectivity that we always look for when we acquire royalties and streams. The royalty today and the mine life is contemplated solely on an oxide ore body and an SX-EW circuit. Is there potential in the future for a sulfide ore body to be processed and sold as a copper concentrate potentially? I think that'll become clear in the coming years as Mimbula considers further exploration drilling.
Will the increased free cash flow level flow through to dividends in line with our capital allocation framework?
Absolutely. I think the free cash flow will be determined. The capital allocation framework, as we've previously communicated it with regards to dividends, would be distributions within a range of 25%-35% of free cash flow.
Thanks. With that, there are no further questions at this time. With that, Marc, perhaps I'll hand over to you for some final comments.
I think in brief, thank you very much for joining us today. I think this is a fantastic acquisition for Ecora. I think it really builds on a lot of the strong momentum we've seen starting in Q4 last year, but also the momentum we've seen to date this year that's expected to continue more widely on the back of our producing royalty base.
Thank you, everybody.