THIS ANNOUNCEMENT CONTAINS INSIDE
INFORMATION
For
immediate release
27 March 2024
Ecora Resources
PLC
("Ecora"
the "Company" or the "Group")
Full Year Results and Updated
Capital Allocation Framework
Ecora Resources PLC (LSE/TSX: ECOR)
announces full year results for the year ended 31 December 2023.
The Company will publish its audited 2023 Annual Report and
Accounts later today, which will be available on the Group's
website at www.ecora-resources.com and on SEDAR at
www.SEDAR.com.
Ecora is the leading royalty company
focused on supporting the supply of commodities essential to
creating a sustainable future. The Group has a portfolio which
combines near term volume growth in 2024 and 2025 from operations
underlying its producing royalty portfolio with a pipeline of
development projects that should drive material medium term revenue
growth.
Marc Bishop Lafleche, Chief Executive Officer of the Company,
commented:
"Against a backdrop of shifting markets, we're pleased to have
achieved a set of results in line with expectations, underlining
the robustness of our business at every point of the commodity
cycle.
"Looking ahead, we anticipate year-on-year volume growth
across the producing portfolio in 2024 and 2025. We also expect our
operating partners to provide further updates on the timeline to
first production from our near term development royalties, which
combined with our currently producing royalties, have the potential
to generate a portfolio contribution annual run-rate in excess of
$100 million.
"Following rigorous consideration by the Board, we are today
announcing an updated capital allocation framework. The framework
consists of four pillars: growth, post-acquisition balance sheet
deleveraging, cash dividends, and share buybacks. By adopting this
framework, we are prioritising accelerated diversification and
scale, both crucial prerequisites for a royalty company to achieve
a premium equity rating.
"The current market environment has presented us with the
opportunity to buyback Ecora shares at a substantial discount to
net asset value. Consistent with our updated capital allocation
framework to consider share buybacks, we have today announced a $10
million share repurchase which will be accretive to our per share
metrics.
"On behalf of the Ecora team and the Ecora Board of Directors,
I would also like to take this opportunity to thank Patrick Meier,
who will be stepping down as Chair at our upcoming AGM, for
his dedication and unwavering commitment towards transforming Ecora
into the leading future facing commodity royalty company. I am
grateful for his support and guidance, and we wish Patrick all the
very best for the future."
Financial Highlights:
●
|
Portfolio contribution of $63.6m
(2022: $143.2m) due to lower commodity prices and reduced levels of
production from the Group's private royalty area at
Kestrel
|
●
|
Royalty and metal stream-related
revenue of $61.9m (2022: $141.9m)
|
●
|
Profit before tax of $4.6m (2022:
$135.4m)
|
●
|
Adjusted earnings of $30.5m (2022:
$87.9m), and adjusted earnings per share of 11.82c (2022:
37.55c)
|
●
|
Net debt as at 31 December 2023 of
$75m (31 Dec 22: $36m), reflecting $27.5m invested in new royalties
and $37m of deferred payments to S32 during the year
|
●
|
Refinanced the Group's $150m debt
facility, increasing the size of the incremental accordion to $75m
(previously $50m)
|
●
|
Updated capital allocation framework
which seeks to maintain balance sheet strength, provide an
attractive dividend yield relative to the royalty sector and retain
the flexibility to allocate capital for growth
|
●
|
Announcement today of a $10m share
buyback at substantial discount to NAV, primarily funded by
recycling capital from recent LIORC share sales
|
●
|
Final dividend proposed of 2.125c
per share, bringing the total dividend for the year to 8.5c per
share ($22m), as per guidance
|
Portfolio Highlights:
●
|
Kestrel saleable volumes mined
within the Group's royalty area of 1.6 Mt (2022: 4.1 Mt)
|
●
|
Voisey's Bay cobalt stream
deliveries totalled 11 shipments in 2023 (2022: 19 deliveries) in
line with guidance; underground mine construction at Voisey's Bay
now 92% complete
|
●
|
Mantos Blancos total copper
production of 49 Kt (2022: 49Kt)
|
●
|
Favourable Four Mile judgment.
Uranium sales of 5.0 Mlbs (2022: 4.9 Mlbs)
|
●
|
West Musgrave copper nickel project
construction started and now 21% complete
|
●
|
Acquired 0.25% NSR royalty over
Vizcachitas copper project, further enhancing royalty sector
leading copper exposure
|
●
|
Acquired incremental 0.35% GRR
royalty over the Piauί nickel-cobalt project, with proceeds
primarily funding detailed engineering studies that will further
de-risk the project
|
●
|
NexGen Energy made a highly
prospective uranium discovery in Athabasca uranium basin, Canada,
which occurred in an area over which Ecora holds a 2.0% NSR
royalty
|
Outlook:
●
|
Well positioned to fund royalty
acquisitions, including $75m RCF acquisition accordion
|
●
|
Broad pipeline of opportunities
being evaluated in context of increased demand for capital from the
natural resources sector
|
●
|
Year-on-year production volume
growth at operations underlying production royalty portfolio
expected in 2024 and 2025
|
●
|
Kestrel saleable volumes from Ecora
royalty area in 2024 expected to be 15-25% ahead of the 2023
volumes. Majority of 2024 Kestrel royalty receipts expected in
H1
|
●
|
Capstone Copper expected to release
an updated Santo Domingo Feasibility Study during H1 2024. Capstone
Copper targeting a final investment decision in H2 2025
|
●
|
West Musgrave standalone project
economics remain robust, BHP expected to provide updated guidance
over the course of 2024
|
●
|
Brazilian Nickel to further progress
detailed engineering studies, operational readiness preparations,
and construction financing workstreams in the upcoming
year
|
Updated Capital Allocation Framework:
The Board has reviewed the Company's
approach to capital allocation and has approved an updated
framework which aims to maintain balance sheet strength, provide an
attractive dividend yield relative to the wider royalty sector, and
retain the flexibility to allocate capital to enhance the Company's
royalty portfolio via accretive acquisitions. The approach will
also align dividend payout to free cash flow which is expected to
grow as near term development royalties come into
production.
Ecora's updated capital allocation
framework has four pillars:
●
|
Acquire high-quality royalties to
further diversify and grow the portfolio
|
●
|
Focus on post transaction balance
sheet deleveraging
|
●
|
Distribute semi-annual cash dividends
based on a range of 25-35% of free cash flow1
|
●
|
Consider share buybacks in the
context of market price and net asset value
|
Based on research analyst consensus
commodity price forecasts and operator production volume guidance
from Ecora's operating partners, the mid-point of the new dividend
payout ratio would see total FY 2024 dividend of approximately 4.0c
per share.
1Free cash flow is calculated
as net cash generated from operating activities, plus proceeds from
the disposal of non-core assets and repayments received under
commodity related financing arrangements, less finance costs and
lease payments.
Analyst and Investor presentation
There will be an analyst and
investor presentation webcast at 9am (GMT) on 27 March 2024. The
presentation will be hosted by Marc Bishop Lafleche (CEO) and Kevin
Flynn (CFO).
Please join the event 5-10 minutes
prior to the scheduled start time.
Event Title
|
Ecora Resources - 2023 Results
Presentation
|
Time Zone
|
Dublin, Edinburgh, Lisbon,
London
|
Start Time/Date
|
9am (GMT)
|
Duration
Webcast Link
Dial-in (UK-Wide)
|
60 minutes
https://brrmedia.news/ECOR_FY23
+44 (0) 33 0551 0200
|
For further information
Ecora Resources PLC
|
+44 (0) 20 3435
7400
|
Marc Bishop
Lafleche Chief Executive
Officer
|
|
Kevin
Flynn
Chief Financial Officer
|
|
Geoff
Callow
Head of Investor Relations
|
|
|
|
Website :
|
www.ecora-resources.com
|
|
|
FTI
Consulting
Sara Powell / Ben Brewerton / Nick
Hennis
|
+44(0) 20
3727 1000
ecoraresources@fticonsulting.com
|
Notes to Editors:
The financial information set out in
this Results Announcement does not constitute the Company's annual
report and accounts for the years ended 31 December 2022 or 2023
but is derived from those accounts. The auditors have reported on
those accounts; their reports were unqualified and did not draw
attention to any matters by way of emphasis without qualifying
their report.
Alternative Performance Measures
Throughout this announcement a
number of financial measures are used to assess the Group's
performance. The measures are defined below and, with the exception
of operating profit/(loss), are non-IFRS measures because they
exclude amounts that are included in, or include amounts that are
excluded from, the most directly comparable measure calculated and
presented in accordance with IFRS, or are calculated using
financial measures that are not calculated in accordance with IFRS.
The non-IFRS measures may not be comparable to other similarly
titled measures used by other companies and have limitations as
analytical tools and should not be considered in isolation or
as a substitute for analysis of the Group's operating results as
reported under IFRS. The Group does not regard these non-IFRS
measures as a substitute for, or superior to, the equivalent
measures calculated and presented in accordance with IFRS or those
calculated using financial measures that are calculated in
accordance with IFRS.
Portfolio contribution
Portfolio contribution reflects the
underlying performance of the Group's assets both in terms of those
already in production and the timing of the Group's development
royalties coming into production.. Portfolio contribution is
royalty and stream related revenue net of metal stream costs of
sales, plus royalties received or receivable from royalty financial
instruments carried at FVTPL and principal repayments received
under the Denison financing agreement.
Operating profit
Operating profit represents the
Group's underlying operating performance from its royalty and
stream interests. Operating profit is royalty and stream
related revenue, less metal streams cost of sales, amortisation and
depletion of royalties and streams and operating expenses.
Operating profit excludes impairments and revaluations, and
reconciles to 'operating profit before impairments and
revaluations' on the income statement.
Adjusted earnings and adjusted earnings per
share
Adjusted earnings represent the
Group's underlying operating performance from core
activities. Adjusted earnings is the profit/loss attributable
to equity holders plus royalties received from financial
instruments carried at fair value through profit or loss, less all
valuation movements and impairments (which are non-cash adjustments
that arise primarily due to changes in commodity prices),
amortisation charges, unrealised foreign exchange gains and losses,
and any associated deferred tax, together with any profit or loss
on non-core asset disposals as such disposals are not expected to
be ongoing. Adjusted earnings divided by the weighted average
number of shares in issue gives adjusted earnings per
share.
Dividend cover
Dividend cover is calculated as the
number of times adjusted earnings per share exceeds the dividend
per share.
Free cash flow and free cash flow per share
The structure of a number of the
Group's royalty financing arrangements, such as the Denison
transaction completed in February 2017, result in a significant
amount of cash flow being reported as principal repayments, which
are not included in the income statement. As the Group
considers dividend cover by reference to both adjusted earnings per
share and the free cash flow generated by its assets, management
have determined that free cash flow per share is a key performance
indicator.
Free cash flow per share is
calculated by dividing net cash generated from operating
activities, plus proceeds from the disposal of non-core assets and
any cash considered as the repayment of principal, less finance
costs, by the weighted average number of shares in
issue.
Cautionary statement on
forward-looking statements and related information
Certain statements in this
announcement, other than statements of historical fact, are
forward-looking statements based on certain assumptions and reflect
the Group's expectations and views of future events.
Forward-looking statements (which include the phrase
'forward-looking information' within the meaning of Canadian
securities legislation) are provided for the purposes of assisting
readers in understanding the Group's financial position and results
of operations as at and for the periods ended on certain dates, and
of presenting information about management's current expectations
and plans relating to the future. Readers are cautioned that such
forward-looking statements may not be appropriate other than for
purposes outlined in this announcement. These statements may
include, without limitation, statements regarding the operations,
business, financial condition, expected financial results, cash
flow, requirement for and terms of additional financing,
performance, prospects, opportunities, priorities, targets, goals,
objectives, strategies, growth and outlook of the Group including
the outlook for the markets and economies in which the Group
operates, costs and timing of acquiring new royalties and making
new investments, mineral reserve and resources estimates, estimates
of future production, production costs and revenue, future demand
for and prices of precious and base metals and other commodities,
for the current fiscal year and subsequent periods.
Forward-looking statements include
statements that are predictive in nature, depend upon or refer to
future events or conditions, or include words such as 'expects',
'anticipates', 'plans', 'believes', 'estimates', 'seeks',
'intends', 'targets', 'projects', 'forecasts', or negative versions
thereof and other similar expressions, or future or conditional
verbs such as 'may', 'will', 'should', 'would' and 'could'.
Forward-looking statements are based upon certain material factors
that were applied in drawing a conclusion or making a forecast or
projection, including assumptions and analyses made by the Group in
light of its experience and perception of historical trends,
current conditions and expected future developments, as well as
other factors that are believed to be appropriate in the
circumstances. The material factors and assumptions upon which such
forward-looking statements are based include: the stability of the
global economy; the stability of local governments and legislative
background; the relative stability of interest rates; the equity
and debt markets continuing to provide access to capital; the
continuing of ongoing operations of the properties underlying the
Group's portfolio of royalties, streams and investments by the
owners or operators of such properties in a manner consistent with
past practice; no material adverse impact on the underlying
operations of the Group's portfolio of royalties, streams and
investments from a global pandemic; the accuracy of public
statements and disclosures (including feasibility studies,
estimates of reserve, resource, production, grades, mine life and
cash cost) made by the owners or operators of such underlying
properties; the accuracy of the information provided to the Group
by the owners and operators of such underlying properties; no
material adverse change in the price of the commodities produced
from the properties underlying the Group's portfolio of royalties,
streams and investments; no material adverse change in foreign
exchange exposure; no adverse development in respect of any
significant property in which the Group holds a royalty or other
interest, including but not limited to unusual or unexpected
geological formations and natural disasters; successful completion
of new development projects; planned expansions or additional
projects being within the timelines anticipated and at anticipated
production levels; and maintenance of mining title.
Forward-looking statements are not
guarantees of future performance and involve risks, uncertainties
and assumptions, which could cause actual results to differ
materially from those anticipated, estimated or intended in the
forward-looking statements. Past performance is no guide to future
performance and persons needing advice should consult an
independent financial adviser. No statement in this communication
is intended to be, nor should it be construed as, a profit forecast
or a profit estimate.
By its nature, this information is
subject to inherent risks and uncertainties that may be general or
specific and which give rise to the possibility that expectations,
forecasts, predictions, projections or conclusions will not prove
to be accurate; that assumptions may not be correct and that
objectives, strategic goals and priorities will not be
achieved.
A variety of material factors, many
of which are beyond the Group's control, affect the operations,
performance and results of the Group, its businesses and
investments, and could cause actual results to differ materially
from those suggested by any forward-looking information. Such risks
and uncertainties include, but are not limited to current global
financial conditions, royalty, stream and investment portfolio and
associated risk, adverse development risk, financial viability and
operational effectiveness of owners and operators of the relevant
properties underlying the Group's portfolio of royalties, streams
and investments; royalties, streams and investments subject to
other rights, and contractual terms not being honoured, together
with those risks identified in the 'Principal Risks and
Uncertainties' section of our most recent Annual Report, which is
available on our website. If any such risks actually occur, they
could materially adversely affect the Group's business, financial
condition or results of operations. Readers are cautioned that the
list of factors noted in the section herein entitled 'Risk' is not
exhaustive of the factors that may affect the Group's
forward-looking statements. Readers are also cautioned to consider
these and other factors, uncertainties and potential events
carefully and not to put undue reliance on forward-looking
statements.
The Group's management relies upon
this forward-looking information in its estimates, projections,
plans and analysis. Although the forward-looking statements
contained in this announcement are based upon what the Group
believes are reasonable assumptions, there can be no assurance that
actual results will be consistent with these forward-looking
statements. The forward-looking statements made in this
announcement relate only to events or information as of the date on
which the statements are made and, except as specifically required
by applicable laws, listing rules and other regulations, the Group
undertakes no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information,
future events or otherwise, after the date on which the statements
are made or to reflect the occurrence of unanticipated
events.
This announcement also contains
forward-looking information contained and derived from publicly
available information regarding properties and mining operations
owned by third parties. This announcement contains information and
statements relating to the Kestrel mine that are based on certain
estimates and forecasts that have been provided to the Group
by Kestrel Coal Pty Ltd ("KCPL"), the accuracy of which
KCPL does not warrant and on which readers may not rely.
Technical and Third-Party
Information
As a royalty and streaming company,
the Group often has limited, if any, access to non-public
scientific and technical information in respect of the properties
underlying its portfolio of royalties, or such information is
subject to confidentiality provisions. As such, in preparing this
announcement, the Group has largely relied upon the public
disclosures of the owners and operators of the properties
underlying its portfolio of royalties investments, as available at
the date of this announcement. Accordingly, no representation or
warranty, express or implied, is made and no reliance should be
placed, on the fairness, accuracy, correctness, completeness or
reliability of that data, and such data involves risks and
uncertainties and is subject to change based on various
factors.
Los Andes Copper Ltd, the owner of
the Vizcachitas project, is listed on the Toronto Stock Exchange
and reports in accordance with the standards of the Canadian
Institute of Mining, Metallurgy and Petroleum and the NI 43-101
standards.
Chairman's
Statement
2023 was a year of mixed fortunes
for the markets in which we operate. Having enjoyed relatively
buoyant conditions in the wake of the pandemic, the economic
outlook has been affected by the fight against inflation and the
resultant higher interest rates. At the same time China's economy
has been less robust than we have seen in recent years which has
dampened demand for some key raw materials, and continued
geopolitical tensions and conflicts give cause for
concern.
Having benefitted from record prices
in our commodity mix in 2022, we saw some easing during 2023. This
has led to lower prices for some commodities such as cobalt, while
steelmaking coal has fallen even though it continues to trade at
historically high levels. In turn, this has led to lower earnings
at a more sustainable level than in 2022.
We remain committed to the
transition we have undertaken in our portfolio towards those
commodities which are critical for decarbonisation and are very
excited at the quality and future potential that our current
portfolio offers. We are seeing a slower rate of the growth in
demand for some areas such as electric vehicles but the pace is
still extremely strong and the medium- and long-term direction of
travel is clearly set as the imperative of tackling climate change
intensifies.
We will continue to build the
portfolio with strong value-accretive transactions and are hopeful
that the current economic and market pressures experienced by the
mining sector will offer us even better opportunities to deploy
capital.
I am writing to you for the final
time as Chairman of Ecora Resources and it is perhaps worth
reflecting that back in 2015, the Company was really a play on a
single royalty, over the Kestrel steel-making coal mine, that had
around ten years of income contribution left. The two major
strategic challenges to address were the overdependence on one
asset and the need to diversify the commodity base whilst
orientating towards future facing commodities.
Under the management of Marc Bishop
Lafleche, the team has completed several transactions that are
expected to replace the Kestrel income and developed the royalty
sector leading copper exposure. The portfolio now offers material
income growth over the coming years.
To put this into context, in 2015
our royalty income was $13.6m, 73% of our NAV was in coal, net
assets totalled $240m and we had a $30m borrowing facility. Compare
this to 2023, with royalty income of $61.9m, 85% of our NAV now in
future facing commodities, net assets totaling $482m and a
borrowing capacity of $225m. Whilst this transformation has not
been reflected in the share price, I have every confidence that
this value will be realised in the coming years as the development
projects hit production and start to deliver income for the
Company.
Beyond the asset portfolio, there
has also been considerable change within the Company over the last
few years. The Board has completely transitioned, and we have built
a team of highly experienced, capable individuals. We have
strengthened the wider team in key functions within the business
such as legal, finance and investor relations, reflecting the
increased maturity of the Company. I am also pleased to say that we
have developed a governance framework that is fit for our business,
and despite not being a premium listed company, have upheld the
corporate governance standards of such a company. Finally, we
responded in 2020 to the increased focus on sustainability by
establishing a Sustainability Committee that has driven
improvements in our processes and disclosures in this
area.
Board and
Governance
Following a thorough recruitment
process, we were delighted to announce the appointment of Andrew
Webb as non-executive director and Chair designate in January.
Andrew has a wealth of experience as an advisor to the mining
sector from his role as a Managing Director of Rothschild &
Sons. He is already proving that he will be a valuable addition to
the Board. I wish him all the very best in the role and I am sure
he will work well with the Board, Marc and the rest of the team to
drive the Company forward.
The Board continues to execute its
role in both challenging and supporting the management team in
pursuit of the company's strategy. An integral part of the Board's
focus is to ensure we operate with integrity and to the highest
ethical standards; our commitment to sustainability forms an
important part of this.
The Board is constantly seeking to
improve its effectiveness and during 2023 completed an independent
Board effectiveness evaluation. More detail on the process can be
found in the Annual Report & Accounts, but to summarise the
Board was found to function well, with some areas for improvement
highlighted which we will address.
Capital
Allocation
The Group moved to paying fixed
dividends in US dollars in 2023 with a quarterly dividend of 2.125c
per share, resulting in an annual dividend of 8.5c per
share.
The Board has reviewed the company's
approach to capital allocation and has approved an updated
framework which aims to maintain balance sheet strength, provide an
attractive dividend yield relative to the wider royalty sector, and
retain the flexibility to allocate capital to enhance the Company's
royalty portfolio via accretive royalty acquisitions. The approach
will also align dividend payout to free cash flow which is expected
to grow as near-term development royalties come online.
Ecora's updated capital allocation
framework has four pillars:
●
|
Acquire high-quality royalties to
further diversify and grow our portfolio
|
●
|
Focus on post-transaction balance
sheet deleveraging
|
●
|
Distribute semi-annual cash dividends
based on a range of 25-35% of free cash flow1
|
●
|
Consider share buybacks in the
context of market price and net asset value
|
1Free cash flow is calculated
as net cash generated from operating activities, plus proceeds from
the disposal of non-core assets and any cash considered as
repayment of principal, less finance costs.
Based on research analyst consensus
commodity price forecasts and operator production volume guidance
from Ecora's operating partners, the mid-point of the new dividend
payout ratio would see total FY 2024 dividend of approximately 4.0c
per share.
The updated dividend arrangements
will take effect for the 2024 financial year, starting with the H1
2024 dividend which will be declared in September 2024 and will be
payable in January 2025.
The Board has decided that at the
current market valuation a share buyback represents a compelling
investment opportunity and has therefore approved a $10m share
buyback programme to commence immediately. This majority of this
will be funded from the proceeds of the partial sale of our stake
in Labrador Iron Ore Royalty Corporation in Q4 2023.
Stakeholder
Engagement
During the year we continued to
engage with our key stakeholders. In terms of shareholders, we have
run proactive engagement programmes with both institutional and
retail investors in the UK, Europe, Australia and North America. We
have further expanded the sell side research coverage in the UK,
and this will continue to be an area of focus in 2024. We have
continued to build closer relationships with our operators and
communities and were pleased to co-invest with Vale in our first
community initiative at Voisey's Bay. On behalf of the Board, I
would like to thank all our stakeholders for your continued
support.
Thanks
Finally, I would like to sign off by
thanking the Ecora team for all their support over the past nine
years, and their ongoing hard work and dedication. The Company has
changed beyond recognition since I first joined - as a team, we
have overcome hurdles and achieved our key strategic objectives. I
am confident that the foundations are now in place and the Company
has an exciting future ahead.
Patrick Meier
Chairman
Chief Executives
Review
Challenging global macroeconomic
conditions persisted throughout 2023. Contractionary monetary
policies appear to be successfully containing inflationary
pressures, however fears of a hard economic landing
persist.
As is always the case for the
natural resource sector, demand is key. In this respect a slowdown
in the Chinese economy coupled with two serious international
conflicts created a lot of uncertainty for domestic policies such
as those around adoption of electric vehicles and transition
timelines and commitments to net zero. This saw a reduction in
demand for electric vehicles in certain markets which coincided
with increased supply of key battery commodities such as nickel.
However, lower commodity prices are likely to make certain battery
chemistries more economical with the potential of lowering the cost
of adoption - which in its own right could trigger renewed demand
in future periods.
These challenges were exacerbated by
a noticeable stagnation in the UK's small-cap equity markets. This
sector experienced widespread redemptions across small-cap equity
funds, coupled with a notable shift of capital away from the
UK.
The cumulative impact of these
top-down factors have made for a difficult year, particularly for
UK listed small cap equities and contributed to a 33% decline in
our share price.
We look forward with confidence, and
in 2024 we anticipate year-on-year production volume growth from
the key assets underlying our royalty portfolio, and in the medium
term onwards, our royalty portfolio is aligned to strong
multi-decade structural demand growth trends driven by the energy
transition. The investment in Ecora shares by the Ecora Executive
team, and along with several Board members throughout 2023 and into
2024 demonstrates our belief in Ecora's solid foundation and
promising future.
Growth opportunity
The mining sector at large has been
facing the same challenging market conditions that have impacted
the Ecora share price. The availability of capital from equity
markets is primarily limited to the largest producers. Furthermore,
equity valuations are compressed. In these conditions, however,
royalty funding is a highly attractive source of funding. Should
these conditions persist, we anticipate a favourable window to
deploy capital and further diversify and grow our royalty
portfolio.
In 2023, Ecora made two development
stage investments. We were delighted to add a royalty over the
Vizcachitas project, one of the largest undeveloped copper projects
that is not in the hands of one of the large mining companies. As
such, it was a rare opportunity and adding it to our portfolio
extends our royalty sector leading copper growth pipeline out into
the next decade.
We were also pleased to make a
further $7.5m investment into Brazilian Nickel's Piauí project. The
proceeds will primarily be used to finance detailed engineering
studies and flow sheet optimisation that will further de-risk the
project prior to the start of construction. Once built, the
operation is expected to be amongst the lowest cost global
producers of nickel and generate strong cash flows throughout the
commodity price cycle.
During the year, we also reviewed
and progressed a number of opportunities across a variety of
commodities and jurisdictions, some of which we ultimately decided
not to pursue. As important as the investments we make are
the ones which we do not. Our due diligence process is rigorous and
looking back with hindsight at these opportunities, the decisions
taken were the correct ones and have enabled us to preserve capital
which can be deployed in 2024. Our disciplined approach to
investments has served us well, and we will continue this diligent
approach to deliver on our strategy.
Capital allocation
In light of current market
conditions driving strong mining sector demand for royalty
financing, I believe it is the right time to rebalance our capital
allocation policy towards growth while currently maintaining an
attractive dividend yield in the context of the wider royalty
sector. By adopting this framework, we are
prioritising accelerated diversification and scale, both crucial
prerequisites for a royalty company to achieve a premium equity
rating. In Q4 2023, we sold approximately
60% of our stake in Labrador Iron Ore Royalty Corporation (LIORC)
realising C$18.9m, a total pre-tax return on investment of c. 110%.
these funds will primarily fund the buyback programme we announced
today and the $7.5m we invested into Piauí in December 2023 With
Ecora shares trading at approximately at 0.5x estimated net asset
value (based on research analyst consensus estimates), increased
exposure to our high-quality royalty portfolio is a highly
attractive investment which will drive earnings and NAV per share
accretion.
The completion of our revolving
credit facility refinancing in January 2024 maintains our strong
financial position, enabling us to further grow the company through
acquisitions of attractive royalties. In particular, we were
pleased to upsize the acquisition accordion feature to $75m, in
addition to the $150m headline availability.
Results
Portfolio contribution of $63.6m
was, as expected, lower than the prior year (2022: $143.2m)
primarily as a result of lower production out of the Group's
private royalty area at Kestrel. Adjusted earnings per share was
$11.82c (2022: 37.55c).
Net debt increased to $75m (2022:
$36m) as payments of $37m were made to South32 as deferred
consideration for the royalty acquisition made in July 2022 and the
Group made $27.5m of royalty acquisitions.
Outlook
Looking ahead, we have a great deal
of optimism. Production volumes from Kestrel, Voisey's Bay and
Mantos Blancos are all expected to be higher than in 2023 which, at
year-to-date commodity price levels, could result in year-on-year
portfolio contribution growth in 2024.
The ramp-up of production from the
underground mine at Voisey's Bay is expected to commence in the
second half of 2024 and should lead to year-on-year growth in the
number of cobalt deliveries going forward, as it reaches steady
state production.
Whilst there has already been plenty
of turbulence in the nickel markets in early 2024, both West
Musgrave and Piauí sit at the lower end of the cost curve, were
they in production, would be expected to generate robust cashflows
even at current nickel price levels. BHP has stated that
construction of West Musgrave is 21 per cent complete and that it
is reviewing the phasing of capital expenditure around the project.
Brazilian Nickel continues to progress construction financing
workstreams to fund the full-scale production plant at Piauí and we
expect more news on this during the course of 2024.
In our copper portfolio, Capstone
Copper plans to release an updated Feasibility Study on Santo
Domingo by mid-year. Commentary from Capstone suggests there are
material efficiency gains and volume upside from the integrated
development plan compared to the initial Feasibility Study
completed in 2018.
The core portfolio is well
positioned to deliver income growth in the year ahead. Our new
capital allocation policy and upsized debt facility position us at
the forefront of the favourable market conditions to deploy capital
and further diversify and grow the portfolio.
Finally, I would like to extend our
deepest gratitude to our outgoing Chairperson, Patrick Meier, for
his leadership and commitment to building a world class royalty
company throughout their tenure. During the time Patrick has been
Chair, Ecora has transformed, and has emerged in stronger and more
resilient position than ever before.
Finance
Review
As expected, 2023 marked the start
of a transitional period for the Group while Voisey's Bay ("VB")
ramps up and production at Kestrel begins to move outside of our
private royalty lands. This saw deliveries from VB reduce from 19
to 11 in the year and volumes from the Group's private royalty
lands at Kestrel reducing from 4.1mt to 1.6mt. Combined with softer
prices for steelmaking coal, cobalt and copper throughout the year
than those realised in the prior year, the Group's portfolio
contribution reduced from $143.2m in 2022 to $63.6m in 2023. This
is the level which the portfolio should continue to generate until
the growth comes through from our near-term development
royalties.
The Group invested $27.5m during the
year into two development projects: $20m to acquire a 0.25% NSR
royalty over the Vizcachitas copper project; and $7.5m to upsize
the Group's existing 1.25% NSR over Brazilian Nickel's Piauí
project to 1.60% as part of the funding required to advance the
technical studies for the full-scale expansion. Both acquisitions
add compelling growth prospects into our medium-longer term
pipeline. On 3 January 2024 the final instalment of deferred
consideration relating to the $185m royalty portfolio acquired in
2022 was paid to South 32. Absent the Incoa project meeting its
phase II conditions, the Group has no further capital
commitments.
At the end of 2023 we took the
opportunity to re-finance our existing revolving credit facility.
Despite challenging credit conditions during the second half of the
year, we were delighted to see our existing lenders demonstrate
their support of the Group by agreeing to an amendment and
extension of the previous facility. As a result, the Group will
face no refinancing requirement until 2027 at the earliest. The
support of our lenders, who are amongst the largest Canadian
institutions, further validates the Group's strategy and endorses
the quality of our royalty portfolio. The amendment and extension
of the facility provides the Group with the financial flexibility
to pursue the growth opportunities we are currently seeing and
expect to continue in 2024 and beyond.
Results
The Group's portfolio contribution
reduced by 56% to $63.6m in 2023, from a record $143.2m in 2022.
This was driven in large part by lower volumes at both Kestrel and
Voisey's Bay, along with softer commodity prices across the Group's
portfolio.
|
2023
|
2022
|
|
|
$m
|
$m
|
YoY%
|
Kestrel
|
35.9
|
107.2
|
(67%)
|
Voisey's Bay
|
5.6
|
18.8
|
(70%)
|
Mantos Blancos
|
6.1
|
6.0
|
2%
|
Maracás Menchen
|
3.1
|
3.6
|
(14%)
|
Four Mile
|
6.8
|
1.0
|
580%
|
Carlota
|
0.6
|
0.2
|
200%
|
Royalty and stream income
|
58.1
|
136.8
|
(58%)
|
|
|
|
|
Dividends - LIORC &
Flowstream
|
2.0
|
2.9
|
(31%)
|
Interest - McClean Lake
|
1.8
|
2.1
|
(14%)
|
Royalty and stream related revenue
|
61.9
|
141.8
|
(56%)
|
|
|
|
|
EVBC
|
0.7
|
2.8
|
(75%)
|
Principal repayment - McClean
Lake
|
2.3
|
2.9
|
(21%)
|
|
|
|
|
Less:
|
|
|
|
Metal streams cost of
sales
|
(1.3)
|
(4.3)
|
(70%)
|
|
|
|
|
Total portfolio contribution
|
63.6
|
143.2
|
(56%)
|
As expected, production at Kestrel
was largely outside of the Group's private royalty lands in 2023
which resulted in a 62% decrease in volumes year-on-year from 4.1Mt
in 2022 to 1.6Mt in 2023. While the Group benefited from a full
year of the higher royalty rates introduced by the Queensland
government in July 2022, which resulted in an average royalty rate
of 21.23% for 2023 compared to 16.27% in 2022, steelmaking coal
prices came off the record highs seen in 2022 (although still well
above long-term average) and when combined with the lower volumes,
resulted in the Kestrel royalties decreasing by 67% to $35.9m
(2022: $107.2m).
Production at Voisey's Bay was
impacted by the ongoing transition from the open pit mine and
ramp-up to full production of the underground mine. As a result,
cobalt deliveries reduced by 42% to 11 in 2023 (2022: 19). In
addition to the reduction in cobalt deliveries, the cobalt price
continued to weaken through the first nine months of 2023, with the
Group realising an average sales price of $16.36/lbs (2022:
$32.14/lbs). The combination of both lower volumes and lower cobalt
prices resulted in the contribution from the Group's Voisey's Bay
stream decreasing from $14.5m in 2022 to $4.3m in 2023.
Elsewhere, the contributions from
Mantos Blancos and Maracás Menchen were in line with our
expectations, while the LIORC dividend was lower as a result of
lower iron ore prices and a change in sales mix with lower sales of
the higher value pellets. In addition, the Group reduced its
holding in LIORC by ~60% during Q4 2023 which also contributed to
lower overall dividends for the year.
Following the original judgement of
the Supreme Court of Western Australia in favour of the Group being
upheld on appeal, $5.4m (A$8.1m) of previously underpaid royalties
were released to the income statement in Q4 2023, resulting in a
full year contribution from the Four Mile royalty of
$6.8m.
The following table outlines some
commentary on the key royalties in the period.
Kestrel
|
|
$35.9m vs $107.2m
|
Total saleable volumes
flat
Ecora volumes down ~62% to 1.6Mt
(2022: 4.1Mt), as expected with production transitioning outside
the Group's private royalty lands
Realised average price decreased to
$225/t (2022: $325/t)
First full year of new higher
royalty rates, 21.23% (2022: 16.27%)
FY24: expect an increase with
volumes weighted to the first half of 2024
|
|
|
Voisey's
Bay
|
|
$5.6m v $18.8m
|
11 deliveries in 2023 (2024:
19)
Realised cobalt price decreased to
$16.36/lbs (2023: $32.14/lbs)
FY24: expected deliveries 12 - 16,
ramp up of underground mine expected to commence in in the second
half of 2024
|
|
|
Mantos
Blancos
|
|
$6.1m vs $6.0M
|
Total payable copper production flat
at 49.3Kt in 2023 (2022: 48.8Kt)
Realised copper price decreased to
$8,492/t (2022: $8,724/t)
FY24: Capstone Copper guidance
indicates potential volumes upside with total copper production in
the range of 49,000t - 57,000t
|
|
|
Maracás
Menchen
|
|
$3.1m vs $3.6m
|
Volumes flat in 2023 at 9,000t
(2022: 9,000t)
Realised vanadium price decreased to
$9.21/lbs (2022: $10.47/lbs)
2023 production was impacted in the
first half of the year by adverse weather and the transition to a
new mining contractor, with production normalised in June
2023
FY24: Largo guidance indicates sales
in the rage of 8,700t - 10,700t
|
|
|
Four Mile
|
|
$6.8m vs $1.0m
|
Volumes flat in 2023 at 5.0Mlbs
(2022: 4.9Mlbs)
Realised uranium price increased to
$50.88/lbs (2022: $44.13/lbs)
2023 contribution includes $5.4m in
previously underpaid royalties, following the original judgement of
Supreme Court of Western Australia in favour of the Group being
upheld on appeal
FY24: Volumes are expected to remain
flat year-on-year, the current uranium price presents potential
upside
|
|
|
Dividends
|
|
$2.0m vs $2.9m
|
LIORC dividend decreased to
C$2.55/share (2022: C$3.10/share)
Dividend per share impacted by fall
in iron ore price and change in product mix with lower sales of the
higher value pellets
~60% of the Group's holding in LIORC
was disposed of in Q4 2023
Flowstream dividends remained flat
at $0.3m (2022: $0.4m)
|
Taking this portfolio contribution
analysis, and allowing for operating, finance costs and tax, the
following table outlines the Group's adjusted
earnings for 2023.
|
2023
|
|
2022
|
|
$m
|
%
|
$m
|
Royalty related revenue
|
61.9
|
(56%)
|
141.8
|
EVBC royalties
|
0.7
|
(75%)
|
2.8
|
Metal streams cost of
sales
|
(1.3)
|
(70%)
|
(4.3)
|
Operating expenses
|
(10.9)
|
1%
|
(10.8)
|
Finance costs
|
(8.3)
|
30%
|
(6.4)
|
Finance income
|
0.9
|
-
|
-
|
Foreign exchange and
other
|
1.6
|
(487%)
|
(0.4)
|
Tax
|
(14.1)
|
(59%)
|
(34.8)
|
Adjusted earnings
|
30.5
|
(65%)
|
87.9
|
|
|
|
|
Weighted average number of shares
('000)
|
257,896
|
|
234,062
|
Adjusted earnings per share
|
11.82c
|
(69%)
|
37.55c
|
The Group's operating costs of
$10.9m remained in line with the comparative period despite global
rates of inflation, as the business continues to be run in a
cost-efficient manner with staff costs the primary source of
expenditure.
As expected, the Group's borrowing
costs have increased in line with the movement in global interest,
with the average cost of debt increasing from -4.8% in 2022 to
-8.5% in 2023. The Group's total borrowings have increased
year-on-year from $42.3m at 31 December 2022 to $82.4m at 31
December 2023 with the four instalments of deferred consideration
relating to the West Musgrave and royalty acquisition and the $20m
acquisition of the 0.25% NSR over the Vizcachitas project in the
second half of 2023. With the expected year-on-year growth in
portfolio contribution for 2024, and the revisions to the Group's
approach to capital allocation, we now expect that net debt should
peak in Q1 2024 at ~$90m.
The decrease in the current tax
charge for the year corresponds with the decrease in
royalty-related revenue.
As a result of the above, the Group
generated adjusted earnings for the year of $30.5m (2022: $87.9m)
and adjusted earnings per share of 11.82c (2022:
37.55c).
Balance sheet
Net assets decreased by $21.6m to
$482m during the year ended 31 December 2023 (31December 2022:
$503.6m). This was largely due to the $18.3m decrease in the value
of the Kestrel royalty (net of tax), $7.5m in amortisation of the
Group's producing royalties and the distribution of $22.1m in
dividends, partially offset by the Group's adjusted earnings for
the year of $30.5m.
As at 31 December 2023, the Group's
net asset per share was $1.85 compared to $2.15 a year
ago.
Cash Flow and Liquidity
The Group's net cash generated from
operating activities, largely represented by royalty-related income
less overheads and taxes, decreased to $33.5m (2022: $132.5m).
Cashflows from operating activities plus the principal repayments
received from Denison Mines of $2.3m ($2.9m) less finance costs of
$6.0m ($4.2m) results in free cashflow of $29.7m for the year ended
31 December 2023 (2022: $132.1m).
The Group had a busy year in terms
of capital allocation and deployment. During the year, the Group
paid four further instalments of deferred consideration to South32
totalling $36.7m in relation to the acquisition of the West
Musgrave royalty in July 2022, with the final instalment of $9.2m
being paid in January 2024. In addition, the Group acquired a 0.25%
NSR royalty over the Vizcachitas project from Los Andes Copper
Limited for cash consideration $20.0m and increased its existing
NSR royalty over the Piauí project from 1.25% to 1.60% for $7.5m
during the second half of 2023, resulting in total royalty
acquisitions including transaction costs of $27.9m.
Partially offsetting the deferred
consideration and royalty acquisition payments was the $13.7m
realised from the partial disposal of the Group's interest in LIORC
and the $5.3m received from Whitehaven Coal in relation to the 2021
disposal of the Group's royalty over the Narrabri project,
consisting of $4.0m in deferred consideration and a further $1.3m
in price-linked contingent consideration.
The reduction in free cash flows
along with the Group's investing activities resulted in the Group's
net debt position increasing by $38.2m to $74.6m as at 31 December
2023 (2022: $36.4m). Even though borrowings increased, the leverage
profile associated with this remained very manageable and at the
end of 2023 the key leverage covenant was 1.4x compared to the
maximum 3.5x permitted. Based on latest production guidance and
pricing estimates, and absent further acquisitions, we would expect
net debt to peak on H1 2024 at less than $90m with leverage ratios
comfortably under 2.0x throughout.
It was against this backdrop that
the Group refinanced its $150m revolving credit facility in January
2024. The key commercial terms of the new
facility include:
●
|
Interest payable is SOFR plus a
ratchet between 2.25% and 4.00% depending on leverage levels
(previously 2.75 - 4.00%)
|
●
|
Extension of the term of the
facility to January 2027, with an option to extend the tenor twice
by up to 12 months on each occasion
|
●
|
Increase in the uncommitted
accordion to $75m (previously $50m) which could take the facility
up to $225m
|
●
|
Increased permitted leverage ratio
to 4.5x for a period of six months following certain permitted
acquisitions
|
●
|
All key financial covenants remain
the same with comfortable covenant compliance anticipated
throughout the term of the facility
|
Following the refinancing and with
$87.0m of net debt presently, following the final payment to
South32 in January 2024, the Group has access to $58.0m of
liquidity with a potential further $75m by way of the accordion for
future acquisitions. There remains further financing
flexibility by way of the Group's remaining stake in LIORC ($9.5m)
and $3.5m of shares held in treasury, providing the Group with
total financing flexibility of $146.0m.
Capital Allocation
In the context of a favourable
investment backdrop, where access to capital remains challenging
for small to mid-cap operators, the Board has updated its capital
allocation framework to better position the Group for further
meaningful growth. To support the growth strategy, future dividends
will be determined by a percentage pay-out ratio of free cash
flows, instead of the fixed cent per share approach currently
employed. This approach to determining dividends ensures greater
alignment between the Group's portfolio contribution and returns to
shareholders, particularly in years with earnings volatility. The
Board will look to pay out between 25-35% of free cash flow on a
semi-annual basis commencing with the H1 24 dividend.
Based on published operator guidance
(implying volume growth in FY 24) and current pricing levels, the
mid-point of the payout ratio would see total FY 2024 dividends per
share of ~4.0c per share, this remains a sector leading yield in
the diversified royalty universe. The final dividend for FY 2023,
if approved by shareholders at the forthcoming AGM, will remain
unchanged at 2.125c.
Consistent with the wider capital
allocation priorities and investment criteria of the Group, the
Board has identified a value arbitrage opportunity between its
investment in LIORC and the current market value of its own
instruments. LIORC currently trades at a p-nav multiple of ~0.9x vs
the ~0.5x implied by the current Ecora share price. This represents
a compelling capital recycling opportunity, as a result the Group
has announced a $10m share buyback programme. The buyback will be
financed largely through the $6.5m surplus disposal proceeds from
the LIORC disposal in Q4 23 and should be immediately accretive to
key financial metrics.
The revisions to the Group's capital
allocation framework and the additional liquidity they will
provide, together with the refinanced borrowing facility, places
the Group in a strong financial position and well capitalised to
take advantage of the high quality opportunities that we expect to
see at a favourable point in the cycle.
Portfolio
Review
In 2023 the portfolio entered a
period of transition as the income base started to rebalance
towards the future facing commodities that will drive medium term
earnings growth.
Portfolio contribution of $63.6m was
down 56% on the prior year as a result of lower contribution from
Kestrel as production started to move in and out of the Group's
private royalty area. However, volumes in the Group's private
royalty area at Kestrel will broadly plateau across 2023 to 2026,
underpinning the Group's received production volumes while Voisey's
Bay ramps up and West Musgrave, Santo Domingo and Piauί are
constructed.
During 2023, the portfolio
marginally underperformed against expectations.
At Voisey's Bay, the progress on the
transition to the underground mining operations was slower than
anticipated at the start of the year. Vale reports that physical
completion of the Voisey's Bay underground mine extension was 92%
at the end of the fourth quarter, and that the main surface assets
are completed and already operating. The electromechanical assembly
on the remaining surface assets are well advanced (above 60%
physical progress). In the underground portion, the scope in Reid
Brook is completed and the project is fully focused on Eastern
Deeps. The mine development has concluded and construction is
ongoing.
At Mantos Blancos, production
volumes were impacted by stability issues that prevented the
concentrator and tailings systems from operating at nameplate
capacity. The operator, Capstone Copper, has commenced execution of
a work programme costing $35m to address these issues and
sustainable nameplate operating rates are expected to be achieved
during the first half of 2024.
Across the Group's development
royalties, which will drive future growth, and assuming
operatorship of the West Musgrave project, BHP continued
construction with the project being 21% complete by January 2024.
In early 2024 BHP announced that in light of weak nickel prices it
is reviewing the phasing of its planned capital expenditure
programme on West Musgrave, although it also recognized that the
project was economic on nickel prices at that point in time, since
which they have increased by c. 6%.
Capstone Copper continues to make
progress on the Santo Domingo project. During 2023 it worked with
Ausenco to update the existing Feasibility Study that dates back to
2018. Ausenco is optimising the process configuration and updating
the mine plan. The technical report is expected to be published in
the first half of 2024.
Base Metals:
Copper
Mantos Blancos
Mantos Blancos generated $6.1m of
revenue for the Group in 2023, up 2% on 2022 ($6.0m). Total
payable copper volumes increased to 49.3Kt (2022: 48.8Kt) and the
underlying copper price in the year averaged $8,492/tonne
(2022: $8,724/tonne).
Production guidance by the operator
for 2024 is between 49Kt and 57Kt of copper metal from Mantos
Blancos.
H1 2024 is expected to be lower than
H2 2024 as the operator intends to install the equipment necessary
to remove bottlenecks in the processing circuit. Once this issue is
resolved, Capstone expects the mine to operate at nameplate
throughput rates of 7.3mtpa of sulphide ore milled.
Capstone Copper is also studying the
option to undertake the Mantos Blancos Phase II expansion which
would take the concentrators throughput from 7.3mtpa to at least
10mtpa Feasibility Study is expected to be published in
2025.
Santo Domingo
In 2023 Capstone completed a
brownfield expansion of the Mantoverde copper mine, located 35 km
away from Santo Domingo.
During 2023 Capstone, in tandem with
third parties, worked to update the 2018 Feasibility Study. The
original Feasibility Study was based on a stand-alone development
and the updated study will capture synergies expected to arise from
the proximity to Mantoverde. The Feasibility Study is also expected
to reflect a revised design that aims to achieve a smaller
footprint and higher mill throughput rate, which should have a
positive impact on capital and operating costs.
The project is fully permitted and
shovel-ready. The updated Feasibility Study is scheduled to be
published in the first half of 2024. Capstone has also stated
that once the study is published, it plans to consider a sale of a
minority stake in Santo Domingo. FID is targeted for H2
2025.
Vizcachitas
During 2023 the Group acquired a
0.25% NSR royalty over any open pit operations of the Vizcachitas
copper project in Chile. The operator, Los Andes Copper, is
targeting first production in 2029 and the royalty steps up in the
event production is delayed beyond 30 June 2030.
The Vizcachitas project is amongst
the largest and lowest cost undeveloped copper deposits with a
long-life and in a well-established mining jurisdiction.
A robust Pre-Feasibility Study was
published in April 2023, indicating 1,220Mt of mineral reserves at
0.40% CuEq grade, 1,514Mt of measured and indicated resources at
0.44% CuEq grade and 1,823 Mt of inferred resources at 0.38% CuEq
grade.
In September 2023 Los Andes
appointed ERM to conduct an analysis of the licensing process for
the project and to define the required baseline studies.
Reserves-based mine life is 26 years
with average payable copper production of 183 Ktpa in the first 8
years and 153 Ktpa over the life of the mine, which has
considerable life of mine extension potential.
Base Metals:
Nickel
West Musgrave
BHP assumed the operatorship of the
West Musgrave nickel-copper project in 2023 following completion of
its takeover of OZ Minerals. The project is in the construction
phase and BHP announced in February 2024 that construction is 21%
complete.
The nickel industry has seen rapid
supply growth from Indonesian operations. The supply ramp-up has
put downward pressure on nickel prices, currently at approximately
$17,500 per tonne. This has led to a number of nickel operations in
Australia being placed on care and maintenance, and BHP is
considering the same course of action for its Nickel West
operations, which have recently been integrated with the West
Musgrave project to form the Western Australian Nickel
unit.
The West Musgrave project's
economics remain robust, with BHP stating that the operation could
generate reasonable returns despite a weak nickel price environment
and assuming lower forward prices for nickel. However, as BHP
studies a potential move into care and maintenance for Nickel West,
it will consider the merits of phasing the remaining West Musgrave
construction capital expenditure.
Piauί
Production of first nickel from the
small scale PNP1000 plant commenced in June 2022. The learnings
from the PNP1000 plant have fed into the detailed engineering
studies and flow sheet optimisation that will further de-risk the
project prior to construction.
Ecora invested $7.5m in November
2023, increasing its royalty from 1.25% to 1.60%, with the proceeds
primarily being used to finance the aforementioned
workstreams.
The operator continues to advance
funding discussions for the full scale project which, once
concluded, will be shortly followed by FID and commencement of
construction. The project is expected to produce 27ktpa of nickel
and 1ktpa of cobalt during the initial 10 years of
operation.
Specialist & battery
metals: Cobalt
Voisey's Bay
The expansion and completion of the
underground mines has taken longer than expected and is now
expected to be completed in H2 2024. As a result, more nickel than
planned came from the Discovery Hill open pit which is of a lower
ore grade than the underground mines.
Consequently, eleven deliveries of
cobalt were received by Ecora in 2023 (2022: 19 deliveries)
totalling 220t of cobalt.
Cobalt prices were also down year on
year with an average price achieved of $16/lb (2022:
$32/lb).
The combination of lower volumes and
prices resulted in total stream revenue of $5.6m (2022: $18.8m)
and, after cost of sales, generated $4.2m of net portfolio
contribution (2022: $14.6m).
Mining operations continue to
transition from the open pit to the underground mine.
Production from the Reid Brook and Eastern Deep mines is expected
to ramp up throughout 2024 and 2025.
We expect to receive 12-16
deliveries of cobalt in 2024 (each delivery is
20 tonnes).
When ramp-up is completed by the
operator, the underground mines will produce approximately 45ktpa
of nickel and approximately 2.5ktpa of cobalt in concentrate at the
peak annual mill feed rate of 2.6Mtpa. At this point the Ecora
should receive approximately 40 deliveries per annum (70% of
which are attributable to Ecora).
Specialist & battery
metals: Vanadium
Maracás Menchen
Royalties from the Maracás Menchen
mine totalled $3.1m during the year (2022: $3.6m) on sales of 9.0Kt
of V2O5 in 2023 (2022: 8.9 Kt)
The average vanadium price of
$9.21/lb was lower than in 2022 ($10.47/lb).
Largo has announced production
guidance for 2024 of 8.7Kt to 10.7Kt of V2O5. Ilmenite sales are
expected to ramp up over the year and average 60-67kt.
Uranium
McClean Lake Mill
Production from the Cigar Lake mine
totalled 15.1 Mlbs (2022:18Mlbs) with productivity impacted due to
mining being initiated from a new zone in the ore body.
Toll milling receipts from the
McClean Lake mill totalled $4.1m in the year (2022: $5.0m). These
toll milling receipts are applied against the Group's
interest-bearing loan receivable from Denison Mines, initially
against any outstanding interest and
then principal.
Guidance for production from Cigar
Lake 2024 is back up at the licensed capacity of 18Mlbs of uranium.
Cameco has also announced that it has started the workstream
necessary to extend the estimated mine life to 2036. More detail on
this is expected as we move through the year.
Four Mile
Royalty revenue from Four Mile
totalled $6.8m (2022: $1.0m). This included $5.4m of accrued income
released to the income statement following a favourable judgement
by the Supreme Court of Australia, Court of Appeal in relation to
the dispute with Quasar Resources Pty Ltd. with regards to the
allowable deductions being applied to the Group's
royalty.
Lower impact bulks: Iron Ore
Pellets
Labrador Iron Ore Royalty Company
The operation had a total 2023 full
year production of 9.7Mt (2022: 10.3Mt) of iron ore pellets and
concentrate, which was within Rio Tinto's FY guidance for 2023
(9.3Mt to 9.8Mt). Production was 6% lower than 2022 with challenges
due to wildfires in Northern Quebec in the second quarter, as well
as extended plant downtime and conveyor belt failures in the third
quarter.
LIORC declared total dividends of
C$2.55 per share, 18% down on the prior year (2022:
C$3.10).
During the year, the Group sold
approximately 60% of its residual stake in LIORC realising C$18.9m,
a total pre-tax return on investment of c. 110% and a gain on
disposal of C$4.1m.
Other: Steelmaking
coal
Kestrel
2023 saw mining operations move into
the area of the mine that is only partially covered by Ecora's
royalty area and therefore saleable production volumes due to Ecora
were principally received in Q1 and Q4.
Production volume within Ecora's
royalty area totalled 1.6Mt (2022: 4.1Mt) at an average realised
price of $225/t (2022: $325/t) which generated royalty income of
$35.9m (2022: $107.1m).
Saleable production volumes within
Ecora's private royalty area are expected to be 15-25% higher in
2024 compared to 2023. Mining activity within the Ecora
private royalty area is expected to be weighted towards
H1.
Saleable production volumes in the
Group's royalty area in 2025 are expected to be higher than 2024
levels and it is anticipated that volumes in the private
royalty area by the end of 2026 will equate to 10% or less of
Kestrel's annual saleable production.