Ecora Royalties PLC

Good afternoon, everybody. Thank you for joining us today.

My name is Geoff Callow, the Head of Investor Relations. I'm joined on this Ecora Resources Full Year 2024 Results Call by our Chief Executive, Marc Bishop Lafleche; and Kevin Flynn, our Chief Financial Officer.

We'll take you through a short presentation. I'll draw your attention to the forward-looking statements on the second slide.

And then at the end of the presentation, there'll be an opportunity to ask questions, both over the phone line and the operator will give you instructions for this at the end and also through the webcast. So with that I'll hand over to Marc.

Thanks, everyone, for joining us and to those joining us from other parts of the world, good morning. Overall, 2024 was a very good year for Ecora in the context of what was a much broader, difficult market backdrop.

We saw portfolio contribution grow year-on-year from our producing royalties if you adjust 2024 for nonrecurring items. And one year in from the introduction of our capital allocation framework, really prioritizing, diversifying our asset base and growing our sources of short and medium-term income.

We feel the acquisition of the Phalaborwa royalty and more recently, the Mimbula copper stream represent tangible delivery on that front. From a portfolio perspective, we saw volume growth in '24 as expected from our key underlying producing royalties at Voisey's.

We saw the completion of the underground mine in the second half of the year and really strong cobalt volume growth thereafter. Mantos Blancos also performed very well.

We saw a record level of royalty income in the fourth quarter and Capstone has guided for further year-on-year copper production volume growth with the potential for that to grow in the future. Same at Kestrel, year-on-year volume growth expected to continue into 2025.

I mentioned tough markets last year. Cobalt was certainly an example of a market that saw significant oversupply and at year-end was trading approximately 50-year lows in real terms.

In that context, that drove an impairment to the Voisey's Bay stream. Kevin will discuss that in more detail on the call.

I will also discuss some of the more recent developments that have occurred in the cobalt market since February that provide what we believe really positive tailwinds in the future on pricing. The last point to flag of note, recently, we announced a copper stream over the producing Mimbula mine.

That increases our producing copper exposure. It's also a very low-cost mine with a fantastic management team.

And as we already mentioned, when we announced the transaction, we really feel it's the perfect deal for Ecora. Moving to the next page.

We can see a snapshot of Ecora's royalty portfolio adjusted for the Mimbula acquisition. On top left of the page, base metals now represent 80% of our commodity exposure with 50% estimated copper exposure as a percentage of our NAV.

From a jurisdiction perspective, 75% roughly of our portfolio to OECD jurisdictions, with the balance being in very well-established mining jurisdictions such as Brazil and Zambia. And as we've flagged many times, the cost curve positioning of our portfolio at Ecora continues to be heavily weighed to low-cost mines or projects, operations that can operate throughout the commodity price cycle and generate strong cash flows are those that are expected to have robust economics and thus more likely to come into production in the future.

And the composition of the portfolio equally continues to be well balanced in terms of the stage of development. The majority of the asset base is weighed to producing royalties and streams with the second largest exposure to advanced permitted or shovel ready development stage projects with just under 20% of longer-term optionality.

I spoke about copper representing approximately 50% of the business' estimated net asset value. And looking over at the next slide, over the last decade, we've slowly built what has become today the royalty sector's leading organic copper growth pipeline, which is just a fantastic achievement and a great platform to continue to build on.

Attributable copper production last year was just under 2 million pounds and that's expected to grow substantially over the next decade with the potential to hit 20 million pounds. The front end of that growth profile is driven by Mimbula and Mantos Blancos.

And in the medium term, of course, Santo Domingo is a big one and Capstone is progressing that project well. Bringing that all together, you can see our critical minerals royalty portfolio is expected to grow substantially in the short, medium and long-term from $20 million in revenue in '24, ramping up to potentially over $100 million of income in 2030.

And that's truly underpinned by our royalties that are currently in production today. We still expect a couple of good years of production volumes at Kestrel, although that royalty is expected to decline in the future as production moves out of our royalty area.

And then looking out again to 2030, almost 80% of our revenue is expected to be generated from base metals. And of that, that's heavily weighed to copper.

Ecora's producing and development stage royalty portfolio offers very strong organic growth. And turning to look what's priced in.

Today, it appears that there's an opportunity for investors to come in at a level that is below the value the estimated value of a producing asset portfolio and capture the substantial volume growth potential and revenue growth potential that exists over the medium term effectively for free. And now I'll hand it over to Kevin to run through the financials.

Thanks, Marc, and turning to our financial KPIs. 2024 was a solid year from the group with volume guidance across the portfolio largely met.

And when we adjust 2023 for the one-off Four Mile catch-up payment, our contribution grew 9% on a like-for-like basis. The volume growth in the portfolio really accelerated towards the end of the year, noticeably at Voisey's Bay and Mantos and this momentum should continue with volume growth expected across the portfolio in 2025.

With a largely static cost base, our adjusted earnings were in line with the previous year at $0.114. And we continue to generate good free cash flow in the period, which was sufficient to meet our investment activity in the year.

This is a key principle of our revised capital allocation framework that we put in place at the beginning of 2024. So in summary, 2024 certainly met our expectations and we're seeing good momentum across the portfolio to be optimistic for what lies ahead in 2025.

Turning to the next slide, which looks at our portfolio contribution in a little more detail. So whilst overall income was in line with 2023, as I mentioned, 2023 did benefit from a one-off historical receipt at Four Mile.

And adjusting for this, our contribution increased 9% on a like-for-like basis. This was largely due to volume growth at Voisey's Bay and Kestrel in the year, offset somewhat by lower commodity prices.

Looking at our base metals portfolio. This performed very well in the period, the noticeable highlight being a 36% increase in volumes from Voisey's Bay.

This was offset, as Marc mentioned, by softer cobalt pricing environment in the period. Our realized prices here were down about 18%.

The inverse was the case at our Mantos royalty, where higher pricing for copper was offset slightly by a reduction in volumes. But the real highlights within our base metals portfolio is what's to come in 2025 and beyond.

At the lower end of our guidance, Voisey's should see a 60% increase in volumes in 2025, and Mantos ended 2024 by hitting record monthly production numbers. With higher spot copper and cobalt prices currently, along with the recent addition of the Mimbula copper stream, which is income producing, we're optimistic for good growth to come from our core base metals portfolio in the year ahead.

Specialty metals saw a reduction at Maracas due to lower vanadium prices. Pricing here was about 30% down on realized prices in the year.

And as I mentioned, Four Mile for 2023 included a one-off back payment of royalties and 2024 was impacted by no sales in the second half of the year. We are now expecting as of 1st of January that sales will return to normal levels at Four Mile for the year ahead and beyond.

Within our bulk and other category, EVBC continues to benefit from very high gold prices. This offset lower volumes in the period.

But the outlook for the gold price looks set to remain healthy certainly for the near-term in 2025. Kestrel saw a 30% increase in volumes in the period, achieving the high end of our guidance at 2.1 million tonnes.

We're guiding, I think, 5% to 10% increase in volumes in 2025 before the royalty begins to taper off as it moves outside of our private royalty area beyond that. Looking at pricing, coking coal futures are currently higher than the current spot price, which is very important for us considering most of our volumes from Kestrel in 2025 are expected to come through in Q2 and Q3.

So overall, the key takeaway here, a very satisfactory year and certainly the potential for more to come in 2025. The next slide shows how the portfolio contribution drops down into adjusted earnings.

Our operating costs remained static year-on-year. Finance costs increased slightly in the period, a function of higher average borrowings as we completed the South32 financing and the Phalaborwa royalty in mid-year.

Our tax charge continues to reflect a higher effective tax rate associated with Kestrel. Our effective tax rate should begin to decrease in the coming years as the complexion of our portfolio changes away from Kestrel towards our base metals portfolio.

Combined, all of this resulted in adjusted earnings of $28.8 million in the period and that translates to $0.114 in the period. This metric also reflecting the lower weighted average shares in issue following the share buyback program undertaken in the first half of 2024.

Our balance sheet is a mixture of assets held at fair value and amortized costs. And overall the royalty assets decreased by 12.5% in the period.

This decrease reflects the natural depletion at Kestrel as it moves towards the end of its life, along with an impairment charge of Voisey's Bay, which Marc mentioned. This impairment charge is due to a prolonged decrease in the cobalt price, primarily driven by significant additional supply in the cobalt market in the period.

This has decreased the forward consensus prices and this impacts the implied future income of the stream, resulting in the impairment. The impairment is reflected both at asset level, but also within our deferred tax line and this number is included in the other long-term receivable category.

But as the impairment is price driven, this can be reversed in the eventuality that pricing rebounds and the forward price starts to tick up again. But ironically, the impairment provision is happening at a time when the operation is producing at record levels and the ramp-up well and truly established.

The next chart shows our net debt movement in the period. Free cash flow was around $22 million, which was sufficient to finance the final South32 payment and our Phalaborwa rare earths investment.

The share buyback in the period was financed by the part disposal of our residual stake in LIORC. The dividend in the period reflects the revised capital allocation policy, which we implemented at the beginning of 2024, and this now sees our dividend being paid based on a percentage of free cash flow.

The final dividend that we proposed is $0.011 per share, which is based on a 25% payout. And when this is added to the $0.017 paid for the first half would result in total dividends for the year of $0.0281.

Following our Mimbula acquisition, we continue to prioritize deleveraging and balance sheet strength. And as such, we would anticipate being more towards the lower end of our payout ratio for the immediate future.

We continue to receive disposal proceeds from the sale of our Narrabri royalty a number of years ago. And following the permitting of the Narrabri South deposit, an additional $3 million was received in January 2025.

As part of our Mimbula financing, we took the opportunity to accelerate all remaining obligations under the sale agreement and this resulted in $6.2 million being received in February 2025, roughly at the same time as the Mimbula financing. Our closing net debt number of $82 million is now a little bit out of date following the $50 million Mimbula stream acquisition.

As a result, our average borrowings in 2025 are expected to be higher than 2024, albeit comfortably within our covenant limits. The next slide shows the modifications we have made to our borrowing facility associated with the Mimbula acquisition.

Once again, we're very pleased to see the ongoing support of our lending group through the acquisition, which saw each of them increase their commitments by $10 million such that we now have a $180 million borrowing facility. And at today's pro forma net debt, around $50 million of this remains undrawn.

We expect to see pretty meaningful repayments over the course of the year, subject to further investments and our immediate priority post-acquisition remains on deleveraging. We've tweaked some of the terms of the facility, noticeably the reduction in our interest cover test to ensure that we retain significant headroom under the covenants over the expected term of the facility, that term itself having also been extended by 12 months to February 2028.

As I said, really pleasing to see our lenders supporting our growth ambitions. And we always feel this is a true validation of our strategy and the quality assets that we're acquiring.

And with that I'll hand back to Marc.

Thank you, Kevin. Turning now to look at the production volume outlook in 2025.

As we mentioned earlier in '25, we expect to see year-on-year volume growth across our producing base metals royalty portfolio that includes Voisey's, Mimbula and Mantos Blancos. We also expect 5% to 10% year-on-year volume growth at Kestrel before mining starts to move out of our royalty areas in '26 onwards.

Looking into more detail at some of the catalysts expected in our portfolio in the short, medium and long-term. This really does suggest that we are approaching an inflection point, most immediately is the volume growth in our base metal assets.

And here I would just like to pause and emphasize the volume growth that's expected at Mantos or in the short-term from year-on-year just existing levels of production. But also beyond that, two sources of growth at Mantos Blancos that Capstone has discussed that are slightly less well understood.

First is the potential to increase copper production in the region of 10,000 tonnes per annum, and this comes with relatively modest CapEx. Capstone is expected to release a feasibility study on this in the second half of the year.

Number two is that Capstone is exploring the potential to retreat tailings at Mantos Blancos and this could deliver approximately 25,000 tonnes per annum of copper. All this with minimal CapEx.

And both projects really appear to have high return on investment as a result of the low capital intensity, relatively simple execution, really the type of projects that mining companies love. Santo Domingo continues to progress well with financing discussions on to progress the balance of the year with Capstone stating an FID window opening up next year.

And there are also exciting developments in our earlier stage royalty portfolio, in particular, NexGen's 2025 drilling campaign at the Patterson Corridor East where Ecora holds a royalty. Early in the campaign, NexGen has released some truly geologically exceptional drill results and we very much look forward to seeing what the rest of the campaign holds.

We would also like to take a moment to remind everyone that the progress at Voisey's Bay, as it was a significant moment last year when the Voisey's Bay underground mine project completed. We've spoken about the strong year-on-year expectation of volume growth, which we expect to be 60% to 90%, which translates to cobalt production attributable to Ecora of approximately 335 tonnes to 390 tonnes this year.

Year-to-date, we've received 56 tonnes, 28 tonnes are on the water, so that puts us on track in early April to be approximately 84 tonnes. In the year ahead, we expect volumes to be slightly weighted to H2, but no changes to our full year guidance.

On the price side, following a very weak cobalt price environment last year, in late February, the DRC announced a cobalt export ban, which had an almost immediate effect on cobalt prices, as you can see on the bottom right-hand of the slide. The DRC ban has had an impact of roughly 60% to 70% on cobalt metal or standard grade and alloy grade metal.

And looking forward, the DRC has stated an intent to adopt some form of export controls beyond the ban, exactly what that looks like, what shape it takes, so we'll have to wait and see. But nevertheless, it does really appear as though we're benefiting from very strong cobalt tailwinds going into this year that could compound the benefits of the expected volume growth.

Pricing tailwinds are also characteristics that we see over at our Mimbula copper stream, which we announced a few months ago. As we mentioned at the time, it's producing copper stream immediately income generative, should be accretive to our earnings and free cash flow 2025 onwards.

It's a brownfield expansion which, of course, is relatively less risky than a greenfield project. Fantastic management team.

And as we discussed at the time, the stream is structured in such a way that on the first 15,000 tonnes of production, we expect to receive around 5 million. Incrementally on the next 15 million to 30 million that would -- an additional 2.5 million taking us to 7.5 million.

And then at full steady-state production levels of around 56,000 tonnes of copper per year, that would take us to an additional 2 million or just under $10 million a year. And all this is calculated on a fairly conservative copper price of $4.20 which, in our view, has a lot of potential for outperformance given the really strong supply-demand longer-term fundamentals, but also some of the short-term factors currently playing out in the copper market.

And finally we feel very confident about Ecora's 2025 outlook and generally its future. Ecora benefits from a proven royalty model.

Its royalty portfolio today is very heavily weighed to base metals with copper at the core. We see copper and cobalt commodity price tailwinds.

In '25, we anticipate volume growth across our base metals portfolio and also from Kestrel. From a balance sheet perspective, we anticipate continued deleveraging in the next 12 to 24 months, providing flexibility to continue to grow the business.

And of course it's a very attractive entry point with Ecora trading at a material discount to the value today of its producing asset base. So with that we'll hand it over to any questions.

Hi, guys. Thanks so much for the call.

I just have two questions from my side. Could you just provide a bit more color around the long-term outlook for cobalt?

Do you think prices can stay where they are if the DRC implements export controls or doesn't? Let us get some color on that, please.

And secondly, where are you guys thinking in terms of share buyback? Like how should we think about your decision-making in terms of triggering that for the rest of the year?

Thanks.

Thanks for the question. So the first on the cobalt market outlook.

I think it's difficult at this time to speculate as to exactly what will happen and what policy will be adopted by the DRC. There's also a spectrum of possible outcomes as well, depending on the level of the sizes of export quotas should these be adopted.

Generally speaking, it does appear though that there are some really positive cobalt price tailwinds at the moment. In fact, the DRC is also reportedly engaged with the state of Indonesia, who's another big cobalt producer to try to consider what, if anything, can be done on this side to better manage the availability of cobalt supplies.

Again, from a demand perspective, I think year-on-year, you saw pretty healthy growth last year. Obviously, that was entirely overshadowed by supply emissions.

But year-on-year, demand growth was estimated just under 10%. So longer term, we'll have to wait and see.

The second question in terms of share buybacks, when we updated our capital allocation framework last year, that was principally focused with the objective of further diversifying and growing Ecora's royalty portfolio. I think where we sit today from a capital allocation perspective, the immediate focus would be on deleveraging and reducing debt following the acquisition of the Mimbula acquisition.

Into the future, it's something that could be considered, but it would have to be in this current circumstances at the time.

Cool. Thanks so much.

Yes. Thanks, team, and thanks for the call.

Marc, just a couple of questions and Kevin. First one is just off the back of the buyback question, I mean, clearly the shares seem to be overdone in terms of weakness today.

I can't understand why they're trading down at these levels. But I mean, surely, based on where you're trading on a price to NAV basis, it does make sense within the next 12 to 18 months if the market hasn't kind of woken up to the value that's locked in these shares that you start instead of investing in new royalty or streaming opportunities by buying back your stock.

Is that a sensible way to think about it or not?

Hi, Richard. Thanks for the question.

I think from a pure NAV accretion perspective, it's hard to argue with the math. I think the quota shares are trading at somewhere around half of estimated NAV.

So in that sense, it would be entirely accretive. But as I just mentioned, at the moment right now, the immediate capital allocation priority would be to deleverage.

I think should the shares be trading at these levels in 12, 18 months, as you referenced, should deleveraging have occurred. It's something that could be considered at the time, which is very difficult today to commit to anything in the future without running the full sets of circumstances that may present themselves at the time.

Okay. Thanks.

And then I guess one of the sort of challenges sort of recently has been the kind of the fact that the portfolio contribution has been pushing lower just off the back of either the coal price and also the share of Kestrel that's been coming into the portfolio. But looking at Slide Six, it would appear that we are finally reaching that inflection point in the stock and particularly the contribution where it actually starts to trend higher as, firstly, assets like Voisey's ramp-up, Mimbula comes in.

And also you've got the potential for growth coming from some of those other royalties that you've got as well. Do you agree with that or do you think that we're sort of in a stabilization period just in terms of the direction of the near-term portfolio contribution?

Thanks.

I think we absolutely agree, Richard. And actually, it's why frankly, we were just really excited about the portfolio.

I think when you look at the growth that we have organically in the business today, and in particular, you look at the growth in the non-Kestrel element from base metals and other royalties. And furthermore, the growth that's coming, not necessarily from development stage assets, but from assets that are already in production, which are just subject to entirely relatively much lower risk profile.

I think personally 2025 to 2030 is just a fantastic period of change for this business, where we end up in a couple of years expected to see not too dissimilar level of royalty income from where we were last year, but actually from many different assets as opposed to principally weigh to one met coal royalty. And number two, in the commodities that have really attractive short, medium and long-term characteristics, demand characteristics, particularly copper.

So beyond that, of course, there's a development portfolio, which is offers almost a doubling potentially of revenue profile. That's development stage, of course, and entails risk.

But in the business today, I agree, there's just a fantastic growth profile from the assets already in production, absolutely enhanced with the Mimbula acquisition and further supplemented by that, what would appears to be the royalty sector leading copper growth pipeline.

Okay. Understood.

All right. Appreciate that.

Thanks for your time.

Thank you. The first questions are from Alex at Canaccord.

First of all, do you see the effective tax rate falling over the coming years as revenue shifts away from Australia and the streams ramp up?

Yes, I suppose I better take that one. Thanks, Alex.

Yes is answer to that. Kestrel, for those of you who are unfamiliar is an asset that basically has zero cost base to the group.

And as it's in Australia, it does attach quite a high effective tax rate to it. Obviously, the cash flows are great, but it does come with a high effective tax rate.

Obviously, as that asset kind of depletes and gets nearer to its end of use period, the other assets in our portfolio, the base metals will come in. Those have got tax shields associated with them and not in such a high tax jurisdiction.

So we would expect in the next 12 to 18 months to see our free cash flow conversion improve significantly.

Another question from Alex. Do you see opportunities for EVBC's life to be significantly extended given the movement in gold and copper prices?

I think that's a short answer and it's absolutely yes. This is an asset that originally had a mine life, a reserve base ending over 10 years ago.

That's been sequentially extended up to the present with higher gold prices come higher cut-off grades and we could absolutely see a longer mine life at that asset.

Some of the questions you've asked, if you submitted one and I don't ask it, it's probably it's has been covered off, I believe, by the previous conversation. Maybe we'll move on to a question asking, could you advise where to find commodity price levels that result in the current NAV?

I'll take that one. If you look at Page 21 of the slide deck that's online, endnote three on Page 21, I say you'll find the commodity prices there.

It's based on the sell-side analyst consensus and they're listed out in that endnote, and you should be able to access them there. Any questions on that, please don't hesitate to get in touch and we can help you further.

Further question on what is our NAV per share at the moment? I think, again, that's been answered in the slide deck, where you can see on Slide Seven, the total NAV there, I think, is just over GBP1.70 per share and the producing assets is GBP1.20.

So I think that one has been answered by that. And again please go ahead and have a look at that and it should give you all the information that you need.

Further question on the Incoa royalty. When do we expect, what's the status of that?

And when do we expect to provide financing. Marc, maybe you want to take that one.

Yes. Thanks, Geoff.

I think there's been great progress at that asset. The milestones and there are a number of milestones that are required to be achieved for Ecora's right and not obligation to fund its royalty investment.

These have not yet occurred. They're not expected to occur in 2025.

They are expected to occur in '26 or '27. I should also mention, however, that Ecora's obligation at Incoa is a right but not obligation.

Thanks, Marc. Question here, do we foresee maintaining the current dual exchange listings?

I think absolutely. In fact, we've seen quite a sizable uptick in trading volumes on the TSX listing in Toronto, of course, from a relatively low base.

We've seen the Canadian register aspect of our wider shareholder register grow quite substantially again from fairly low levels, but grow substantially, almost nevertheless in the past four or five months. So that's something we're absolutely keen to see continue and we're working hard to try to see improve trading liquidity on the TSX in addition to the LSE.

Given copper prices, do we see any upside, see exploration upside at Carlota?

I think this is an asset that has a fairly defined life by virtue of treating historical dumps given copper price that could push up cut-off grades and what material could be retreated, but that we wouldn't anticipate sort of the usual reserve or resource expansion that leads to additional process material. And that being said, of course, the future is uncertain.

So it really depends on how high you go on copper price. We'll have to see in the future.

And a question about met coal. Given the projected supply deficit in met coal, a critical forward facing commodity to steel production with a compelling supply/demand outlook and considering its current position at the bottom of the price cycle, are you exploring any opportunities to acquire met coal royalties to capitalize on this potential upside?

I think this is one of the question that we've sort of taken before. And I think the important context to note here is that Ecora has specifically with respect to met coal not made a conscious decision to exit Kestrel.

I think what we're seeing at Kestrel is just that the royalty is being depleted. And so the question has always been, well, how do you reallocate capital?

And it's true that in the fairly short to medium term, I suppose there is less investment going into met coal than other commodities, relatively speaking, which has in part resulted in having historically anyway, some good years from our Kestrel royalty. And that also has to be balanced against a horizon that runs multiple decades.

As a royalty investor, these mine lives can run 20, 30, 40 years. Even at Voisey's, for example, the reserve base mine life there has the potential to double or triple in time.

So over that horizon, it's very hard to make a relative case for something, say, a met coal outlook in an industry where steel is generally moving away from utilization of met coal to a commodity like copper, where you're seeing much stronger, relatively speaking, longer-term fundamentals, but actually also today, the opportunity to come into copper at really attractive price levels. And if you go back and look historically at where we priced our copper acquisitions, the Mantos Blancos royalty price at a long-term price assumption of $3 a pound.

For example, Capstone copper and West Musgrave royalties were $3.40 per pound. The long-term price today is knocking on $4.30 and is expected to continue further to grow.

So that's really how we thought about capital allocation in the context of commodity selection. Hope that answers provides you with further detail and answers the question.

We have a further question. Due to the strength in the price of cobalt and copper, do you envisage any revisions in guidance going forward into 2025?

I assume that's looking at you mean there by kind of portfolio contribution guidance. Just to be clear, we don't provide guidance on portfolio contribution because that's clearly driven by price assumptions.

We guide on the expected volumes. And then you can calculate through the royalty rates or the streaming rates, taking your price, what you think that portfolio contribution will be.

There is a consensus on our website, which gives you the analyst predictions for that and consensus numbers around that. And the volume guidance, as you've seen, is in the presentation.

I don't know if there's anything you want to add to that Marc or Kevin?

Not at this time, Geoff. Thank you.

And I think that's all the questions for now. So thank you.