Ecora Royalties (LSE:ECOR) — Full Year Results

0:00 Good morning, and welcome to the ECORA ROYALTIES PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. We will also

0:31 be submitting an additional poll during the meeting as the company are keen to understand the key topics you would like covered in future meetings. I'd now like to hand you over to Mark Bishop LaFleche, CEO. Good morning, sir. Good morning, and thank you for joining us.

0:48 Here today, I my hopefully, my audio is just a quick check to confirm my audio is going through. Okay? Your audio is perfect, sir. Thank you. Fantastic. Thank you. Well, 2022 certainly promised to be a a great year for this company, and 2022 did not disappoint. We ended the year with record royalty, portfolio contribution, with record earnings per share, a record pace of deleveraging, a record dividend cover. And a lot of that was driven by what we all know are nonrepeatable cash flows from our metallurgical coal royalty Kestrel. So the question is, how do we position the business in the past year to navigate, the decline of the Kestrel royalty revenue and position the business for strength into the future? And the short answer is we would redeploy a lot of those proceeds into the acquisition of a high quality near term copper nickel royalty portfolio from South thirty two, which extends the duration of our expected royalty portfolio far into the future and positions the company for substantial revenue growth from its core, what we consider as core asset base into the future.

2:00 Commodity prices were certainly very strong in 2022, which largely, well, certainly contributed towards the company's very strong financial performance. But it's important to keep in mind that while commodity prices to which we have key exposure have softened slightly into the second half of this year, on a relative historical basis, our basket of commodities is still very strong. Certainly, when compared back to 2021 and 2020 before that. So the business continues to have, very, very supportive, tailwinds in terms of the commodity price environment. We've included this slide here to help people understand where the company was, where it's been, and where we think it's going.

2:47 When when we if one for anyone who's been tracking this company since 2014 or for people who are are new to the story, our real our first real strategic imperative in terms of positioning this business on a solid footing, was to replace the growth Kestrel royalty income that's generated on a through cycle basis. So in other words, we've all known for quite some time that the Kestrel royalty proceeds would be running off in 2026. And therefore, our first strategic imperative was to acquire a portfolio of producing royalties, which would contribute towards on a through cycle basis, replacing based on past five year average Kestrel contributions. And from our perspective, we think that that's largely been accomplished following the Voisey's Bay, acquisition in 2021.

3:36 So having that problem ticked off, so to speak, the next step. Well, from there, it was to pivot this royalty portfolio towards a growth phase. Right? And that was really our focus in terms of the POE transaction, and COA, as well as the South thirty two transaction, which we've completed last year. So from where we sit today and we look at our portfolio, with one if the starting point is replace Kestrel, well, we feel like as though that's been achieved. And the next strategic objective was to create growth on top of just that initial replacement and objective, which we now feel has been achieved. So from 2023 onwards, really, our strategic imperative now, we feel, is to add scale and further diversification and in direct diversification in terms of commodity exposure, but also in terms of counterparty exposure as well.

4:32 So a quick restock of where we are today. So the portfolio at the end of last year, approximately 85% exposure to future facing commodities. That's certainly not an accident. We've been very deliberate and methodical in terms of building out that exposure and that profile. We're the business is really well positioned for some really strong trends that are coming in the future in terms of future facing commodity demand growth and what are expected to be sizable deficits. In keeping with the point I made on the prior page in relation to the strategic objective to overlay the portfolio with a growth dynamic from the year end 2021 to year end '22, what we've seen is our exposure to producing royalties, which was almost a 100% of our portfolio, come down to now 62%, which we think is a much healthier balance, in terms of the portfolio composition, and also much more exciting to folks who look at this company and, think about how it could perform in the future.

5:35 I mentioned just now that there's some pretty strong structural trends that are expected to drive supply deficits of the commodity basket to which we materially have exposure. And on this slide, what we've tried to do, which is very difficult, but try to bring it down to some down to earth by giving some examples of what the energy transition actually means to give us give us feel for in sort of practical terms, the challenge, but also the opportunity that lies ahead for a group like ECORA. So starting with EVs, and again, these are sort of conceptual examples, but they do illustrate the point. If we're to achieve a net zero scenario by 2040, what this basically means is between now and then, the world needs something like 700,000,000 EVs.

6:26 Right? And that compares to 10,000,000 of EV sales in 2022.

6:32 Or another way to think about it is, okay, renewable energy, so wind turbines. If the world really needs just under 400,000 wind turbines, that's equivalent to 1,300 more of the biggest offshore wind chart farm that exists in the world today. Or from a battery capacity perspective, what we all what we effectively would require is a 100 times or a 100 more of Tesla's gigafactory in Nevada. Right? And all these all these basically means one thing, which is this is incredibly metal intensive. It's really hard, you know, for for us, I think, as as as individuals to wrap our heads around just how how how big this challenge is, but also, where it adds to the question of where the supply is going to come from. Because as I mentioned earlier, when we look at our commodity basket, copper, nickel, cobalt, uranium, vanadium, all these commodities are expected to go into supply deficits in the medium term.

7:37 And furthermore, bringing new supply online is not easy. Right? The average mining project has a ten to twenty year, if not longer, life cycle between discovery and first production. Mining projects take time in terms of permitting. So we're really stepping into a situation where the underlying fundamentals are are really strong. And if folks, you know, are constructive on the fact that, number one, the world will try to build out more renewable energy, and number two, that the world requires, to upgrade power grids, or expand power grid capacity. Or number three, the world will increasingly shift EV sales of electric vehicles shift sales of vehicles from combustion engines to plug in hybrids or electric vehicles.

8:25 You know, across the board, these are key thematics, which our portfolio today is completely aligned with. So with that, I'll hand it over to Kevin to give you a bit of an update on the business' financial performance.

8:41 Thanks, Mark, and good morning to everybody. Turning to the slide record financial performance. As Mark outlined, it was an incredible year for us in 2022. Portfolio contribution increasing by 68% to a $143,000,000, a huge step up on the eighty five point six last year, which was also a record year for the group. Encouragingly for us, the trend of increased contribution is also replicated in earnings. So our adjusted earnings per share, increased to 37.6 p as well from '20 five, 0.2, cents, in 2021. And finally, the dividend, obviously, well covered in a year of record earnings as well. I'm gonna touch on all of these, KPIs, as we go through these slides.

9:35 So turning, first of all, to portfolio contribution. Here, what we've done is we've we've shown our core portfolio, the portfolio that we've been kind of strategically building over the last eight years to to effectively replace Kestrel, which is now a short life royalty for the business, notwithstanding the fact a very valuable cash generating royalty for us over the next couple of years. But as Mark touched on earlier, Kestrel on average has produced around about $40,000,000 of revenue through cycle for us over that period. Clearly, in 2022, it delivered a lot more based on very high prices and and high volumes, but on average, it's been around $40,000,000.

10:23 And our core core portfolio in 2022 delivered just under that at $36,000,000. So when we look at our objective of replacing Kestrel through cycle, this is where we're demonstrating that progress, with further growth potential to come from that core portfolio going forward. Touching on some of the some of the noticeable variances very quickly. Voisey's Bay, we had 19 deliveries in 2022. This was slightly lower than 2021, but pricing was higher throughout that period, averaging $38 a pound in the first half, but pulling back to $23 a pound in the second half. But even at those levels, that was in excess well in excess on an average basis of our investment thesis.

11:10 We do expect volumes for 2023 to be lower from Voisey's Bay. This was this was well anticipated by us at the time of investing, and should reflect the the kind of low point for volumes before the real impact of the underground transition really kicks in in 2024 onwards. We're really pleased to see Mantos contributing $6,000,000 in the period, as the the benefit to us of their debottlenecking project, which is what our royalty was designed to finance, is really coming through in terms of volumes now, and and 2022 was a higher pricing environment for copper as well. The upside to come from Mantos is, clearly with the potential for them to increase throughput from about 7,300,000 tons per annum to 10,000,000 tons per annum.

11:59 So we should reasonably expect a little bit of upside to come on volumes going forward. Elsewhere, four mile, if I can touch on that one briefly. This number probably doesn't tell the full picture. We were very successful in our court case in Australia last year. But as the counterparty are appealing that decision, we've deferred onto the balance sheet the additional cash that we've received until such time as we receive certainty that that ruling has been upheld, which we which we are hopeful will be, and at which point, we'll release the the deferred revenue into the income statement. Within other is our EBBC royalty. Here, we're in discussions with the operator currently to try and work with them to, address the liquidity pinch that they're currently facing, with their operation.

12:51 We'll report further, in the year, how those negotiations have progressed. And, clearly, the the elephant in the room, Kestrel, a $107,000,000 in 2022, driven by, even though the volumes actually were lower, than 2021, pricing was was a knockout in the year, at one point touching $600 a ton. Even today, it's back at $350 per ton. But in the context of what we have experienced over the last decade, it it represents a very high watermark for Kestrel.

13:29 And if you think about this being a short term royalty now for the business, it's a very nice exit price as those volumes unwind to us. The impact as well of the change in the Queensland government rate was very significant for us in the second half of the year. The weighted average royalty rate in the first half was 13%, and that increased to 23% in the second half of the year at those commodity price levels. And currently at spot prices of 350 a ton, I think the weighted average is still about 23%. So whilst this is a short term asset, it's still very significant. It will contribute strongly in 2023, and that's the thesis really of which we've been able to recycle those cash flows to meet the stage payments on the 32 transaction.

14:23 Looking to to kind of where we see our portfolio going in the short term, there there's no doubt there will be a step down in portfolio contribution next year. We're expecting 50% of volumes that we received from Kestrel in 2022. But looking further beyond that, we obviously strategically in 2022 decided to take those record levels of cash flows and invest them into very meaningful near term growth opportunities within our portfolio, very much linked to future facing metals and our strategy of positioning the business in that direction. And what we can see is we'll we'll have reasonable good levels of revenue in 2023, '24.

15:09 And then in the near term, so mid to end of this decade, we've now got a portfolio which is capable of producing over a $100,000,000 for us. And we think that's very exciting in the an exciting growth profile for the business as we move forward. In terms of capital allocation, our balance sheet strength is is certainly a priority of ours. The record cash we generated in 2022 enabled us to delever, and repay borrowings much more quickly than we would have expected at the beginning of the year. And that continues to be a focus as we go through 2023. We expect our net debt to increase as we go through the year with the stage payments to come for SET thirty two and also the tax payments on the record Kestrel revenues midyear as well. So we do expect gearing to increase as we go through the year.

16:09 But in terms of our liquidity and firepower, we still expect to have well over $100,000,000 to, to access relatively quickly and flexibly if we need to. Funding for further acquisitions is obviously very important. We still remain on a growth journey. We still think there are commodities and opportunities that are available, currently to deploy capital in creative ways. But from our perspective, and as Mark touched on, it's very important that the acquisitions we look to transact on have the potential to really drive per share KPI growth in the near term. And that remains our focus and our diligence as we go forward with, obviously, well capitalized balance sheet in order to move forward and transact.

17:00 In terms of dividends, we're keeping the dividend levels the same. But as we touched on this time last year, we are going to rebase our dividends to US dollars, which basically is the currency we receive most of our cash flow in. It's the currency we report our results in, and it's the currency which commodity prices are usually derived anyway. So this is basically a matching exercise from an FX position. So what does that mean? On average, in the twelve months since we announced this intention, the FX rate has been about 1.21. So our seven p is now effectively 8.47 p. So we've rounded that up to 8.5, and we'll pay a quarterly dividend based on that. For UK shareholders, you will get that dividend, translated on the record date, and you will still be receiving that in sterling. But the point for us is that we're match it's a matching exercise from us, in terms of dividend levels with income.

18:03 And then finally, we'll always consider other forms of shareholder returns depending on the point of the cycle that we're in, how we're seeing growth opportunities, etcetera.

18:18 And I think, Mark, it's back to you. Thanks, Kevin. Well, looking ahead, I mentioned this earlier, we're looking at the next twelve months or 2023 roughly. There's just a lot happening in our portfolio that we're really excited about because, historically, this business, particularly when it was really tied to Kestrel, really lacked organic growth opportunities. And we we couldn't be happier that the portfolio we have today organically has just, you know, this sort of upside, particularly, so it's in the near to medium term. So I'll give just give you an example. In 2024, based on Vale's estimates, we expect pretty sizable ramp up in volumes in Voisey's Bay cobalt production, at Mantos Blancos.

19:06 Two things going on there. First, a study to in relation to the phase two production increase had been paid with the phase one production increase now having been completed, but also potential to extend the life of, the oxide circuit, which produces cathode, which is, again, upside to our investment case. That's all in the short term, in terms of, the the oxides and the phase two expansion is materially less capital intensive, but also less complex than the phase one given phase two relies on a lot of existing excess capacity at Mantos Pico. So that's certainly something for folks to keep an eye on over the course of this year. At Santo Domingo, another capstone asset, a new feasibility study in relation to Santo Domingo, which incorporates a lot of the district potential that exists between the Manto Verde mine, which is only 35 kilometers away, currently in production, and the Santo Domingo project.

20:09 Something so that's certainly something to watch out for in the second half of the year. A bit over the course of this year, we also expect an update in relation to the project financing process that's underway at POE for the construction of that nickel cobalt project for folks who who are not close to that one or who have who are new to the ECORA story. That's a nickel hydro MHP product and also a small amount of cobalt MHP products. Now these can flow directly into a battery precursor supply chain, which is obviously given the geography of Brazil, really interesting to a North American, European, or more generally Western supply chain in the context of supply certainty.

20:57 At Nifty, the the the management team is focused on putting together a financing package to restart the Brownfield copper mine. First production there is expected 2024 to 2026 based on Cyprian Metals public disclosure. Again, potential to move things in the short term, so certainly something to watch over the coming months. And then last but certainly not least, construction activities at West Musgraves. We anticipate further updates in relation to how that construction process is going in the next months. But we also have, in the next few weeks, the Odds Minerals shareholder vote in relation to a potential takeover of Oz Minerals by BHP, which could potentially see one of our flagship copper nickel projects in Western Australia being developed and owned by by BHP, which, you know, in terms of copper nickel exposure, it's a pretty amazing growth a pretty amazing story, so something to watch as well. If that transaction doesn't complete, certainly not anything to lose any sleep about, though, because at the end of the day, Oz Minerals has a fantastic track record of bringing new projects into production, and they've proven their ability to do it, in recent years.

22:18 So where do we sit today, and how do we see the the next 12, you know, short term, months unfolding? Well, as Kevin mentioned in the in on his slide, what we're seeing what we've seen up to now is an asset base, which is approximately 85% future facing commodities. What we anticipate over the next two well, twelve, twenty four, thirty six months is the revenue mix also moving towards that being heavily weighted towards future facing commodities. So in other words, the the steelmaking coal exposure moving towards zero as a percentage of our revenue and the future facing commodity mix moving up to a 100. And that's particularly interesting just given the fact that if you look at base metals businesses and the multiples that these base metal businesses trade on, it's generally much higher than businesses that have revenues linked to metallurgical coal.

23:15 So that that'll be sort of something to watch and, you know, we're curious to see if the the stock trades differently as that revenue complexion changes, over the next twelve, twenty four, and thirty

23:26 six months as I mentioned. Our commodity basket remains fairly strong, certainly on historical basis. Very strong in that context. In the first quarter of twenty twenty three, metallurgical coal prices have been in the at times, well in excess of $350 per ton. And therefore, it appears as if we're teed up for a fairly strong quarter from from Kestrel subject to to volumes, which as of this time, we don't have any information on. But on the on the pricing side, prices certainly been strong there. I mentioned some of the key organic growth catalysts coming throughout the year. As always, we're looking to deploy capital into new opportunities, but we our success at ECORA, we believe, has been driven by the fact that we've been disciplined. We've been patient. We've taken our time. We've been methodical.

24:18 And, you know, in the end, we built a portfolio, we think, which is very, very high quality with some spectacular counterparties, including ballet, BHP, potentially more of BHP, Rio, Capstone. I mean, these are all really tier one mine operators. And while at the end of the day, ECORA itself might be a small cap company, our counterparties, I e the folks who are operating the mine, are either, for the most part, mega cap or or leaders in terms of the, smaller commodity singular focus on sing on on commodities. For example, Capstone is amongst the largest pure play copper producers in the world. You know? So so the risk profile of the core, it's important to understand is, yes, small cap risk in terms of the core size, but our counterparties and our operators are are are not small cap risk in the same way that one would typically see if they were to invest in a mining company with a with a market capitalization equivalent to ECORA.

25:18 During the course of the year, we really pushed to improve our system sustainability disclosure. A lot of that reflects things that we're always doing. For example, when we evaluate a mining operation, we always think about that operation's risk in terms of from a sustainability side because a mine will only operate provided it has its permits. Right? So on a sustainability side, we've always looked to see some of these best practice metrics, even before sustainability was

25:51 the these issues were framed in the context of sustainability, and we've been really pleased to see that by virtue of increased disclosure, the company's risk assessment by external rating agencies has really materially improved. And to give you an example, from the assessment of Sustainalytics, the sustainability and ESG risk on ECORA went from a severe rating and in one move to amongst the lowest possible risk assessments granted by Sustainalytics, which is, you know, we're delighted with, and it is very encouraging in terms of how we can further improve in daylight the things that we're doing. And as I mentioned, on on the growth side, we're always very keen to overlay new assets to our portfolio, portfolio, but we'll do it in a disciplined and methodical way. We're not, yeah, in a in a rush to do as many deals as possible as quickly as possible. What we wanna do is do good deals that drives per share earnings growth on a as well as per share NAV growth.

26:49 So with that, why don't we turn to q and a as I see there are a number of presubmitted questions, as well as live questions, which we'd be happy to take, which will I suspect will be very interesting to the folks who joined us here today. Mark, Kevin, thank you very much for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen. Just while the company take a few moments to review those questions

27:14 submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via investor dashboard. As you can see, we have received a number of questions throughout today's presentation, and thank you to all investors for submitting their questions. I please ask you to read out the questions and give responses where it's appropriate to do so, and I'll pick up from you at the end.

27:35 Okay. Perfect. So shall I just read them out as I go?

27:39 The first question we have here is a pre submitted question, which is effectively since becoming CEO on more than one interview, you've stated at ECORA, we're near to finalizing a new deal. However, there's not been a single deal announced. To those, you expect to sign off all through at the final hurdle. Well, I'll just remind folks that since becoming CEO, we completed the second biggest acquisition in the history of this company, which saw South thirty two become our largest shareholder,

28:09 which is an incredible vote of confidence both in terms of our asset base, but also the company itself and the direction of travel and our investment track record. As we've always said in terms of new deals, we're very active in terms of reviewing opportunities, but we're also very disciplined and very cautious. We don't measure success at ECORA in terms of how many new royalties we buy just as a number in a in a in a conceptual sense. We measure successes by really high quality royalties as being over high quality projects that are relatively,

28:45 less risky by virtue of strong management teams that are able to operate through cycle, that have a good line of sight that that ultimately, if they're at the development stage, the projects will be built. And so, you know, I I I don't personally remember promising any deals, over this period. But what I have said and what I'll continue to say is that we are certainly reviewing opportunities. It's a question of finding the right ones that we think will ultimately drive the most shareholder value.

29:16 Mark, there's a few questions here. Maybe we can wrap together on POE, for instance. So questions as to whether it's fully permitted. Does that is the feasibility study released? When do we need to exercise our option and kind of the profile from that point on?

29:38 Sure. Okay. Let's take those all in one go. So, yes, the project's materially permitted. The key next step is to, put together a financing package, and the company is well advanced in that process. That process was kicked off in the second half of last year. That process, obviously, is not completed yet, but it's underway. And to date, it's been encouraging, but we shall see in terms of timing, whether it's this year or next year.

30:06 In terms of our funding commitment, it'll it'll occur once there's a visibility on the whole project construction being financed inclusive of our contribution. It is not a mandatory thing that we contribute to the project. So in other words, if the royalty were not economic, we're not forced to deploy the $70,000,000. But where we sit today in terms of long term commodity price expectations from a pure economic perspective,

30:34 We're really pleased to hopefully be in a position to deploy capital into that project. It's a really high quality opportunity with a strong team. And as I mentioned during the call, a product that is straight down the fairway in terms of providing supply chain certainty on a strategic level to Western supply chains, which in today's world is of enormous relevance.

30:56 And maybe, Mark, a slight follow on from that. Apart from paying down the debt, which projects are in the pipeline that need to be funded from current cash?

31:09 In the next months, we have contingent In the next months, we have fixed payments to sub 32, which is a over the course of this year, we'll be making four payments of approx around $9,000,000 each of a total I I think there's one more to go into 2024 afterwards. Right, Kevin? That's right. So the course of this year, there'll be approximately $36,000,000 of payments to sub 32 with one more payment on in early twenty twenty four.

31:41 In the course of 2023, it's possible that we fund POE in the same way it's possible we fund POE in 2024. If the project financing gets to that stage, we would certainly look to fund it. And it's possible in 2024 that we fund ECORA. So all in all, 70,000,000 for ECORA potentially, 20,000,000 excuse me. 70,000,000 for PIOE potentially, potentially 20,000,000 at ECORA, which is $90,000,000 over the course of this year, 40,000,000 to south thirty two.

32:15 That total is a 130,000,000. And, obviously, from a capital deployment perspective, we we think about that when we think about capital returns and we think about leverage ratios and our priority to ensure that the business has a strong balance sheet.

32:32 And then, Mark, kind of kind of staying on the the project financing theme, a question about West Musgrave. To what extent the project financing there is already in place?

32:48 Any reason we should think BHP transaction wouldn't close?

32:52 And is h 02/2025 a guess or something we should be confident about?

32:58 In terms of financing, the project was fully financed at the time of OZ Minerals board decision to proceed with the construction of West Musgraves. That is now plus or minus five months underway. The company has reiterated guidance and for the first production at Oz at West Musgraves in 2025. So we're not aware of any change in guidance from that first production profile at this time. In terms of the BHP transaction, it's sort of difficult for us as ECORA to speculate as to why or why not that transaction may close. We would comment it appears as though BHP's bid has is well received. It's been fully recommended by the board of Oz Minerals.

33:44 But beyond that, it's difficult for us to provide, you specifics into the into that transaction dynamic given we're not party to it.

33:56 Okay. And a question here, Mark. Your predecessor, I assume this means Julian, was regularly frustrated with the share price. Thoughts on what we can do to improve that? Yeah. We're scratching our heads a little bit. You know, I'd love to speak for you, Kevin. But when we look at the portfolio and we look at the base and we look at the replacement cost of the asset base just by virtue of where royalties and streams transact, the recent share price performing has performance has been perplexing. But, you know, part of that really seems to be some macro dynamic where from a bottom up, the fundamentals for ECOR remain very strong.

34:44 But from a top down, we're also in a world where

34:48 the the past few months have seen rising rates, some liquidity crisis amongst some major global banks. In that context, markets have traded down. I think our strategy on the share price really is to keep delivering good transactions. Right? That's what we're really focused on, and that's what's in our control. And increasingly, we think the real as as as we deliver good deals that generate value and are accretive to shareholders, we would have thought the share price should just take care of itself. We are perplexed by it, but it's not something that we're singularly focused on.

35:29 And then, Mark, another one for you maybe on Cobalt, whether it's becoming as crucial for EV trends, and where would that leave us vis a vis our voices by exposure? Yeah. That that's actually that's a really interesting question. And so it's a comeback to a point I made earlier where, you know, some folks say, okay. If the world's gonna achieve net zero, the world would need 700,000,000 EVs by 2040. And the reality is if one were to assume that in that scenario, all those chemistries were nickel based chemistries with cobalt, it's really hard to see how there's enough nickel supply or cobalt supply in an intervening period to actually achieve that outcome. And so what you're seeing is, you know, folks looking at the supply outlook, the supply deficit outlooks, and a number of battery chemistries emerging that will ultimately mean there's enough materials across the spectrum. And by end application, battery chemistries reflect, you know, performance necessary.

36:36 So from from the cobalt side, in terms of absolute demand growth, the picture remains very strong. Where forecasts are for, continue you to be for supply deficits in the cobalt market in this medium term. And from the perspective of ECORA's investment in Voisey's Bay, our investment really was predicated upon long term prices in the range of '22 to twenty three dollars in 2021 terms. So what does that mean? Well, what we've seen is cobalt has gone from sort of $15 per pound in the last couple of years up to $40 per pound. Now it's trading around 17 to $18 per pound on fast markets, which is where most cobalt contracts globally are quoted and reported against. And we're in a position where we've received a weighted average price of of just under $30 per pound. So from an investment perspective, we've done really well from a price point of view where we're up maybe 40 30 to 40% on our investment case.

37:35 Cobalt will always have a degree of volatility. You know, it's it's really small market. And I think commodity was with with relatively small markets, say, compared to the copper volumes. I mean, the cobalt market is around 200,000 tons as opposed to, you know, know, millions of tons for copper. And in that context, you know, we'll see some price swings. What's important is that over time, the investment case is below the midpoint in the cycle because that's an opportunity to deliver performance well above beyond the base case. And that's what we've seen today on the price side. So we remain quite constructive in the medium to long term. In the short term, there are certainly some challenges in the in the cobalt market. But to say that, you know, in the in in the next ten years with the horizon of the Boise's Bay investment, that cobalt will be substituted out of the chemistry entirely.

38:29 Mean, you just don't see that when you look at the battery chemistry lineups planned by major OEMs across the world. So the trends, as I said earlier, in the medium to long term for cobalt still remain very strong. And, Mark, maybe we can link these two together as well. We've the the most recent acquisitions have been in the secondary market. Do we not see opportunities in the primary market? And also, what's the process we go through to identify new opportunities and which countries will we be considering as part of that? Yeah. So why don't we why don't we take that one backwards? So start with the investable universe, so to speak, and then focusing on primary and secondary royalties.

39:16 In terms of the how we identify opportunities, generally speaking, we've been pretty clear in terms of what commodities we target. And in any commodity basket, we have identified a long list of what sort of projects we really like that meet our investment criteria. And then we focus on speaking with those management teams and being opportunistic in terms of financing opportunities to when it may arise in the future. We also, of course, have a lot of inbounds. ECORA is now seen to be the company to speak to, in our view anyways, or amongst the top one or two or three, certainly, to speak to if you have, for example, a future facing commodity and you're a mining company or a project developer and you're looking to finance it, just given the track record that we have in that space.

40:05 And it makes sense, right, if you're a mining company, you'd wanna go speak to people who understand your business and who understand the long term outlook for your commodity. In terms of the DD profile, I mean, as always, we're looking for low cost operations that have the ability to have strong margins through cycle. The bulk of the portfolio focus has been historically towards, you know, strong mining and established mining jurisdictions, strong management teams, really more of the same from what we've done in the past. I think if one were to look at the transactions we've done over the last ten years, that would give anyone a very strong feel for what we're looking for. We're not planning to deviate from that strategy. And then in terms of primary and secondary, I think we've been quite opportunistic.

40:53 We structured a number of primary royalties. Absolutely. We've looked at opportunities, the cobalt mozzies based stream, for example, where initially we looked at it as a primary stream in 2018. Felt cobalt price expectations at the time were too challenging for us. We couldn't quite get there. And then in the end, we're patient and transacted in 2021 at what we think is a much more attractive entry point. So we're we're it's a bit of both, both primary and secondary. We've done both, and we have the capability to do both. It really comes down to dollar for dollar, what's the best investment opportunity, and whether it's a secondary or primary royalty. In that regard, it's slightly less of a concern to us.

41:52 Very good. Maybe one or two for me here, Mark. What's been the impact of rising interest rates on royalty finance? I think the impact of inflation and rising interest rates generally has just increased cost of capital, throughout the sector. Our cost of debt has gone up, so the return profiles we expect on our royalty investments has gone up. That's just an accepted cost of an increase in the cost of capital, weighted average cost of capital for for operators and producers. In theory, we should expect to see, greater deal flow in inflationary times because CapEx budgets have have rebased effectively in a very short period of time. So previously committed borrowing and equity facilities may need may need some overrun space. So I I think, generally, the the background for royalty opportunities still remains strong.

42:52 I think the recent speed bump in the banking markets globally is is also going to probably help that dynamic along as well. So overall, I think net net, it's probably positive. And a question about narrow braai and any further contingent payments. Yes. There are. There are stage payments, to come in terms of the deferred consideration structure. We've got an earn out income to come on certain thermal coal prices, are currently in the money, albeit not as material. And then once Narrow Brass South is permitted, there then is an expectation for the 5,000,000 additional stage payments to come through from that as well. So so the payment schedule we outlined when we announced this disposal is still on track and running according to that schedule.

44:00 Let's see. Question here, Mark, maybe for you. Is lithium metal ECORA would have an interest if the opportunity arose, clearly a gap in our portfolio, I suppose? Yeah. Absolutely. It's something that we've looked at very carefully. I think what we've seen in the past two years is lithium prices go from just to get why don't we talk about, lithium hydroxide, which is one of the a battery precursor product for illustrative purposes, go from under $10,000 per ton to 80 to $90,000 per ton. And now it's come, you know, certainly soften in the recent months. And our strategy is always I think we've demonstrated this as well by virtue of when we've acquired on acquisitions.

44:46 We've really looked to avoid investing and structuring new royalty deals at this time where commodity prices are near their cyclical highs. So seeing commodity prices come down is is helpful. We'd love to have lithium in the portfolio. We'd love to yeah, we'd love to have lithium in the portfolio, but by no means does that mean we're imminently close on announcing a transaction. Lithium is part of a commodity basket that we target, which includes copper, nickel, cobalt, uranium, vanadium, tin, rare earths. So certainly something that we monitor. We'd we'd like we'd like to get some exposure in time, but in terms of timing, let's let's please don't take that to mean that we're imminently announcing a lithium transaction.

45:40 We have a question here, kind of follow on, I suppose, to banking. We're entering an era of more cautious lending by banks. Does this mean there more will turn to royalty finance? I think in my time at ECORA, generally speaking, I think royalties and streaming has become more of a accepted, part of the capital structure of mining companies. It certainly wasn't the case when I joined eleven years ago, but it it certainly has now. And I think that's been a function of volatile equity markets and some of the banking issues that we've seen of late. I I think, as I said earlier, we would expect continued good demand for royalty and streaming transactions as part of a a balanced, capital structure, from from the operators that we're seeing right now.

46:39 I wouldn't say it's, the current volatility is is creating a sudden explosion in demand for it. I think that's just something which has already been set in train. Mark, Kevin, thank you. And I think you've addressed all those questions you can from investors. And, of course, the company will review all questions submitted today, and we'll publish those responses on the investor me company platform. Perhaps before redirecting investors to provide you with their feedback, which I know is particularly important to yourself and the company, Mark, can I please just ask you for a few closing comments? Well, first, I'd to thank you for your interest in the company. We're we're, as a team, we're really proud to have delivered the transformation over the past decade. Kevin and I worked really closely to take a company that was sort of a 100% coal and give it a new lease on life, so to speak, in terms of a lease on life and a growth profile beyond Kestrel, beyond met coal, but also in a commodity basket that has some really interesting fundamental trends.

47:44 We're really excited to see what the next twelve months brings in terms of our organic portfolio. There's a lot happening there, and we really look forward to updating the market as and when these developments unfolds. So please don't hesitate to share any further questions you may have, and we look forward to speaking with you at the next opportunity for an investor meets presentation. Mark, Kevin, thank you for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of ECORA ROYALTIES PLC, we'd like to thank you for attending today's presentation.

48:30 Good morning to you all.