Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong portfolio contribution of $52 million driven by high volume production within the Kestrel royalty area.
- Acquisition of a royalty over the advanced stage Phalaborwa rare earth project, targeting first production in the latter half of this decade.
- Completion of the underground mine extension project at Voisey's Bay, with significant ramp-up expected in the second half of the year.
- Healthy balance sheet with net debt of approximately $86 million and a leverage ratio of 1.4 times, well below financial covenants.
- Successful $10 million share buyback program financed through the disposal and recycling of the LIORC stake.
Negative Points
- Temporary halt in the construction of the West Musgrave project due to weak nickel prices, with a restart considered by February 2027.
- Lower volumes from the Mantos royalty in the first half of the year, though expected to accelerate in the second half.
- Maracas performance down year-on-year due to weaker vanadium prices.
- Significant reduction in portfolio contribution from core assets by 17% compared to the previous period.
- Expected immaterial contribution from Kestrel in the second half as mining is not expected to return to the private royalty area until the first quarter of next year.
Q & A Highlights
Q: You mentioned the importance of the balance sheet and the challenging conditions for nickel. If you decide not to exercise the option for PiauĂ, is there a way you could monetize that option?
A: Good morning, Marina. At this stage, we haven't made any actual decision regarding PiauĂ. Any decision will be made in the context of maintaining balance sheet strength. Currently, we're not advancing any discussions in that area. Regarding Ecora, the long stop date is early 2025, and the company is not tracking towards achieving the CPs for funding.
Q: Do you worry that at this current valuation, there's some potential risk of an opportunistic bid for the company?
A: Good morning, Richard. The shares appear to be trading at a deep value differential to intrinsic value. We believe we have a world-class royalty portfolio and continue to see a great future for the business with a lot of growth and exposure to the right commodities, particularly copper.
Q: How sensitive or strong is the balance sheet versus weakness in commodity prices from today?
A: The balance sheet can weather a downturn in commodity prices. We are not sensitive to short-term coking coal price movements and believe we are at the bottom of the cobalt pricing curve. We run downside scenarios in conjunction with our covenant compliance requirements and are comfortable with the level of gearing in the business.
Q: Can you give us a bit more of a steer on where you expect net debt to go to?
A: Dependent on broker consensus numbers and volumes, net debt could be around the $50-55 million level by the end of next year, decreasing further into 2026 as the ramp-up from Voisey's Bay comes through.
Q: Could you provide your view on the cobalt market over the next couple of years?
A: On the demand side, cobalt has seen continued strong growth. The pressure on cobalt prices has come from supply additions. We believe supply additions have peaked, and we have a line of sight to the beginning of the next cobalt cycle, potentially moving back to balance over 2025-2026.
Q: Portfolio contribution from core assets fell by 70% year-on-year. Should investors be concerned?
A: This year is a tale of two halves. We expect significant growth from the core asset portfolio in H2 and beyond, particularly from Voisey's Bay. The medium-term outlook is strong, with headline revenue expected to exceed $100 million.
Q: Could you explain the net asset per share valuation in detail?
A: The valuation is based on discounted cash flow analysis and reflects a consensus of research analysts. The implied balance sheet net asset value is a mix of assets held at historical purchase cost and revalued assets, with Kestrel being the largest revalued asset.
Q: Is there a possibility that the West Musgrave asset could be sold and completed by another party before 2027?
A: It's hard to comment on BHP's specific plans. However, West Musgrave is a low-cost asset, and even at today's depressed nickel prices, it is expected to be cash flow positive. The asset is heavily weighted towards copper, which remains strong.
Q: Are there actionable and attractive opportunities for royalties or streams on cash-flowing assets in the short term?
A: We've seen a significant uptick in opportunities over the last 6-12 months. Timing is challenging to predict as it depends on various factors, including other financing initiatives and market conditions. However, we are encouraged by the current opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
