Ecora Royalties (LSE:ECOR) — FY23 Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the ECORA ROYALTIES PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet company platform. Before we begin, I would just like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from ECORA ROYALTIES PLC. Mark, good afternoon, sir. Good afternoon, and thanks everyone for joining us for our full year twenty twenty three ECORA investor call investor meet call, I should say.

0:58 So jumping right into it. 2023 delivered what most, most had most expected, down on 2022, of course, in line with expectations. And in the context of just how spectacular 2022 was as a year, very hard to follow it up. But if we strip out '22 as as a bit of an outlier, lot to be happy about in line generally with what we've done as a business the past four years. We'll come back to the financials when when, in in Kevin's section of the presentation. But the first half of the presentation will focus on a couple key points that we have announced as part of these results. The first is the the portfolio itself, and the the the position being positioned for year on year organic volume growth, from 2023 to '24 to '25 from our producing asset base with positions as well for potential for portfolio contribution growth subject to commodity prices in the next this year and next year.

2:06 We'll we'll we'll talk a bit about how our development royalty portfolio underpin beyond the medium term beyond the next two years of sort of organic growth in the business. More generally, the the market opportunity, and what we see today, in the market for royalties and streams and, sort of a window of opportunity of of that comes along. It does come along regularly, but does not come along, very often, if that makes sense, by virtue of the cyclical factors that exist in the mining sector. And we'll talk through our updated capital allocation framework, which we announced earlier this week, and the logic behind the $10,000,000 buyback program, which was also announced at that time.

2:55 And, of course, we'll also talk to you about our balance sheets, including our newly refinanced credit facility.

3:04 This is just a quick snapshot on where ECORA is today. And for the folks who have been tracking ECORA for a long time, There's a lot to like here, in terms of how the portfolio has evolved. And what we've sort of set pretty consistently for the past years is that the business today where we see it is it's kind of the end of the beginning and that the business today is in good shape compared to where it was, certainly ten years ago, and we only had one royalty materially in in Kestrel. But there's a whole lot more work that's required to really take this company to the next level in terms of diversification. That being said, we're really happy with our operating footprint in terms of geographic exposure and good jurisdictions. And if we look at what's happening around us in the world today, I have a good reminder that jurisdictions are really important in terms of royalties, especially if one is taking a twenty to thirty year view on a on a project.

4:01 Our commodity base is is the right one, we believe. At the core of our portfolio today by asset value is copper, And the outlook for copper in particular is, we believe, to be very compelling. In time, that copper exposure will also grow as and when we get closer to production from these assets. So that's a great place to be. In other words, our we have sort of a NAV accretive copper exposure in our business today, as we get closer to first production. And then last is the nature of the portfolio. You know, and what what we've looked to do when we buy royalties and we'll continue looking to do is to buy assets that are are defensively positioned on the cost curve. Because as as most of you will know, if you've been tracking ECORA, the key risk really with a producing royalty is that, the operation is not economic.

4:52 And and we all know that mining is cyclical, and therefore, as a royalty company, having, you know, 8084% of our assets at the lower cost of the cost curve either today or expected to be once in production, really positions this business as a as a, very defensive play and and well positioned to sustain what can be, you know, pretty sizable peaks and troughs in certain underlying commodities.

5:22 This is a quick snapshot of a the Bloomberg World Mining Index. And what you can see here is that, you know, equities have come under pressure. ECORA is no exception. ECORA share price has also come under a lot of pressure. In part, you know, we've seen some pretty pretty challenging macroeconomic circumstances out there that, for many folks, have, take cause a risk off sentiment in terms of their near term commodity demand expectations. We've seen, first of all, you know, sort of underwhelming response last year, following the China reopening, following a period of of really relatively, lengthy lock mandatory lockdown restrictions and and an expectation that would result in substantial demand growth immediately following those the relaxation of those COVID rules in China, which didn't materialize.

6:18 And we also saw a rising rate environment, which caused a lot of folks to worry that we're in for a hard economic landing and commodity prices, not uniformly, but, softened over the course of last year. And if we extrapolate that to the environment today on top if we if we excuse me. If we overlay that with just generally limited capital available to the mining sector, it's creating what we see today as sick a a very attractive of cyclical opportunity to buy royalties, over really high quality projects that, you know, the last time we feel we saw circumstances that were similar was in 2016. So while, you know, in a cyclical sector, we anticipate, yes, we will get back to these, this type of environment at some point in the future. If it's an eight year wait, you know, the opportunity to take capital and to really build our business, to diversify it, to buy more producing royalties, to really diversify our producing revenue, reduce the volatility.

7:25 If we can add more sources of short term growth, so we're more diversified. We're more diversified in short term growth up, today than we've ever been as ECORA. But, you know, more is always better in that area because as we know in mining, some things as we know in mining, you know, if you have four near term development royalties, what's better than that? Eight or 10, for example. So to summarize, today, the market conditions are are are are really creating an environment where the value of the royalty model is shining through. And if for a mining company, if they have to choose between highly dilutive equity financing, if they could even get an equity deal across the line or a royalty partnership, it's it's on a relative basis really attractive.

8:13 So that, in a nutshell, is quick overview of of where we are cyclically and what is a compelling, entry point for growing our portfolio.

8:25 We announced earlier well, yesterday, rather, in the updated capital allocation framework. And that capital allocation framework, in many respects, reflects where we are, in terms of our opportunity to to grow the business, and we feel now is the right time to strategically pivot the business from, a a time in the cycle where it makes sense to deploy a return capital, to one where it makes sense to grow the business by acquiring royalties. So in in terms of our capital allocation framework, we have four key pillars. The first is growth, deleveraging, cash dividends, and share buybacks. I will come back to the cash dividend and the cash dividend formula later in the presentation where there's a slide detailing exactly how that will how that works.

9:18 But the other thing that we announced yesterday was a share buyback. And that share buyback really is in the context of where we're trading, where we believe the true intrinsic net asset value of this business to be. Today, the the stock is trading for less slightly less arguably than the value of our producing royalty portfolio. And so what we kinda see is an opportunity to acquire shares in a really high quality portfolio of royalties, for 50 to 60% of the net asset value. Our our intent in the future is not to regularly distribute capital as shareholder returns via buybacks.

10:05 The the buyback today is really a function of this very sizable, parent discrepancy between the share price and what we believe to be the the the true intrinsic value of of of ECORA.

10:23 So in terms of funding the buyback, what we're what we're what we're doing here is something that we we've done before actually as ECORA. And we're funding the buyback primarily by recycling capital from an equity position that we hold in Labrador Iron Ore Royalty Corp into ECORA stock, which you can see Labrador Iron Ore Royalty Corp on an illustrative basis is trading at sort of double, the the the market price to net asset value at a much more attractive free cash flow yield or relatively speaking. So it's a lower free cash flow yield, excuse me, which in ECORA terms is much more attractive. If you if if if for those who have been following the ECORA story, you'll remember a few years ago, we we proceeded with the buyback that was funded similarly by recycling, the proceeds of the sale of an equity position trading at fifty two week highs into an ECORA stock, which is trading at around fifty two week lows. And while LARORA ROYALTIES Corp is not currently at a fifty two week high, upon exit to that position, we realized an over a 100% pretax return.

11:35 And therefore, it's you know, from our perspective, we believe it to be a compelling capital, recycling exercise.

11:45 This will give you a snapshot of the company and how it's evolved, and we like to include this slide because it allows folks to you know, if you like what we've done or dislike what we've done, you could do this very transparent way to show how the business has evolved and how we've deployed capital. So what the first chart shows you on the top left is the revenue mix. And what you can see if we went back to 2015 is that the revenue mix then was obviously much smaller, but very little contribution from anything other than Kestrel. And the bluish color reflects the portfolio and the assets that we bought that have either that were in production when they were acquired or, are in production today.

12:33 The next is a feel for how our net asset value has evolved. And, obviously, Kestrel in 2015 was a big portion of this business and a sizable portion of the net asset value. And what you can see here is that we've a lot of the capital that we've deployed has not only gone into producing assets. A lot of capital has gone into high quality royalties that are not in production yet, but in time as they come in, well, of course, generate revenue. And and that's what this chart on the right hand side really demonstrates is that today, 53% of our portfolio is producing. There's a pipeline of assets that are in construction thereafter. There's a pipeline of assets that are in development, earlier stage.

13:21 And, therefore, as we move forward in time, what we really are looking to achieve is a treadmill effect where, the producing assets generate income, of course. But as they deplete, we have other assets that are moving up the curve in into production, if that makes sense.

13:42 This gives you a feel for the portfolio, today and what it could look like in the future. And we like to include this slide because you can easily see what what the portfolio, if you just look at the producing assets, can do. So, you know, the dark blue line in this chart represents the producing assets other than Kestrel. And that's, you know, what we what we kinda see the meat and potatoes of the portfolio that's in production, that has already some attractive sources of volume growth, but isn't necessarily subject to development risk in the same way that a construction stage or a green state green greenfield asset is. And that's what that medium term column shows you, where in addition to the producing assets in our business today, you anyone can overlay and evaluate and judge, the expectation, about contributions from assets that are, expected to come online in the medium term.

14:46 So in the context of ECORA, you know, ECORA today, where it trades at an enterprise value multiple has a potential, of course, in time just by virtue of the growth we have in the business to significantly change. But what's what's really interesting we think about ECORA is the nature of the cash flows. Because if we look at the wider mining sector as a proxy, you can clearly see that businesses that derive the majority of their cash flows from steelmaking coal or thermal coal trading at substantially lower valuation multiples than those that derive the revenues from, for example, base metals. And you can actually see that with ECORA where on the right, it shows our current trading multiple to a range which is based on our closest peer, which is not a precious metals business, but is a business that has a commodity basket and that in many ways is fairly similar to ours x metallurgical coal.

15:47 So we think in time, as our our cash flow transitions in terms of, its source from being steel coal or steelmaking coal related to base metals, that there's really potential for this business to attract a higher valuation multiple in the market. And with that, I'll hand it over to Kevin. Thanks, Mark. Hello, everyone. Jeff, if you wouldn't mind moving to the financial performance slide for me, please. These are our KPIs. The portfolio contribution in the year was 64,000,000 which, as Mark pointed out earlier, was always unlikely we were going to hit the highs of 2022 given the volumes in that year from Kestrel and also that Kestrel, particularly in the first half of that year, benefited from record high coking coal prices.

16:45 However, if you kind of exclude 2022, the $64,000,000 in 2023 kind of was in line

16:52 with three previous years to 2022. So very solid performance from the portfolio in 2023. And importantly for us, we expect this kind of level to remain flat or slightly upward trending over the next two years. Twelve months ago, many analysts were expecting a reduction in our revenue in 2024 and 2025 as well. It now looks like we're going have a smoother profile going forward. I'll come on to portfolio contribution on the next slide. Adjusted earnings decreased in line with contribution and more so than the previous years because 2023 had a full year impact of the CET32 shares that were issued in July 2022.

17:37 This produced dividend cover of 1.4x. The final dividend remains unchanged, in line with our previous dividend policy of $2.125 per share. And as Mark mentioned, we've got an updated capital allocation policy. I'll touch on the dividend component of this in a later slide. If we move on to the portfolio contribution slide. Our total our core portfolio of future facing commodities generated about $28,000,000 in the period. This is down from 36,000,000 in the previous period, and this was mainly due to the expected ramp up at Voisey's Bay, slightly offset by the successful appeal that we had in relation to our legal dispute around the four mile royalty.

18:28 Touching on one or two of these in a little more detail, Voisey's Bay, as we said, it is in its ramp up period. So 2023 was always likely to be the low point in terms of volumes. So we received 11 deliveries in 2023. That compared to 2019 and 2022. And pricing as well, which is very well documented in the context of the nickel and cobalt markets, was quite a lot lower in the year as well, averaging about 16.50 a pound versus $32 in the previous year. All of that kind of combined to produce a 70% reduction. However, the underground transition, we're guiding 12 to 16 deliveries in 2024. So we do expect good volume growth to come from this asset. And on a longer term basis, that's likely to be this asset can generate 40 deliveries annually plus. So a very good path to increased volumes to come from this asset.

19:27 Mantos was in line with previous years, but actually benefited in the second half of the year from the debottlenecking projects that ECORA's royalty was designed to part finance. So we're quite optimistic for volume growth from this asset in the year ahead as well. And that kind of coincides with higher copper prices. ECORA are very bullish on copper as a commodity, and we expect to see some growth in this asset next year as well. Looking down the portfolio, I've mentioned four mile to touch on that a little bit further. The $6,800,000 that we received in or that we booked in twenty twenty three, five point four million of this was effectively backdated royalty revenue in relation to the amounts under dispute, which we released to the income statement in the fourth quarter of twenty twenty three with the successful appeal.

20:25 The successful outcome here is quite important to us because the current uranium price is at quite elevated levels coinciding with a period where we're seeing uranium really coming back into favor. The supply sorry, the demand dynamic for it looks reasonably good. So very timely to have a successful outcome here and a higher run rate of revenue to come in the years ahead. The other portfolio, that includes things like EVBC and FlowStream. These were lower in the period because we facilitated a lower ratchet rate at EVBC to allow the operator to continue to mine through some cash flow difficulties.

21:11 That's an asset that we've had very healthy financial returns on over the last twelve years. So we're very pleased to support the operator to continue production. And last but not least, Kestrel. The reduction here, very well signposted, was due to mining being more outside of the group's private royalty area in 2023 than in. And also a more normalization of the coking coal price, which, whilst lower than 2022, should be noted that it's still considerably higher than the long term average here. So a very good tailwind behind Kestrel as it will run down out of our portfolio in the next two to three years. Looking on to the next slide. This kind of brings our portfolio contribution through to show what that did for our net debt position as we went through 2023.

22:09 We invested $27,500,000 in the period into growth assets, 20,000,000 of this through the Viscochitos royalty and $7,500,000 was by way of an advance against our option into the POE project. Along with that, we continue to make our deferred consideration payments associated with the CET32 portfolio. And these the final payment of that was made in January 2024. The PIE investment was part financed through a part recycling and part disposal of our LIORP position. We generated around $14,000,000 from that disposal. We sold 60% of our remaining stake, and that money was put into the POE advance. So again, a very good capital recycling opportunity, we felt, to further advance and derisk the POE project.

23:02 So the remaining $6,500,000 from that stake disposal is now being recycled into ECORA shares through the buyback program that we recently announced. So again, a good capital arbitrage play, we feel, in terms of retiring an equity in our portfolio at a much higher multiple into our own, which we consider to be fundamentally undervalued.

23:30 We still hold the option to put the remaining $62,500,000 into the POE project. That could come as early as the second half of this year. And we, as I will discuss on the next slide, feel like we have the balance sheet capacity to do so.

23:51 So turning to the next slide. We decided to put this one in. We refinanced our facility at the beginning of the year. And this really is a very significant transaction for us because not only is the new facility on better commercial terms, but it's also a little bit more flexible in terms of how we can use the facility to grow our business as well. And we're obviously working with three of the largest lenders to the royalty and streaming space globally in Scotiabank, RBC and CIBC. So very pleased to have their continued support in terms of our business, in terms of the strategy and in terms of the quality of the assets we feel underpin that credit. Some of the key terms of the refi include an upsized accordion feature.

24:41 Previously, it was $50,000,000 It's now 75,000,000 and that's available for future growth. Our leverage can increase to 3.5x in normal business conditions, and this can increase to just over four for certain acquisitions for a period of time post transaction. Pricing, I've mentioned, slightly better than where we were previously. The ratchet begins at two twenty five basis points over SOFR. Previously, that was 2.75. So slightly better pricing, and we would expect to see the Fed start to trim interest rates in the second half of the year. So our average interest cost should reasonably a reasonable expectation should be to see that come down in the second half of the year.

25:32 Looking at what we then have available to us to deploy growth. First of all, we've got $60,000,000 undrawn in our facility at the moment. There is no refinancing or capital commitments in our business currently until January 2027 at the earliest with the refi of this facility. The $75,000,000 accordion I've mentioned is available for growth as is the potential to recycle the residual LIORC stake in our treasury shares. So when taken all together, that provides about $150,000,000 of liquidity to us, which puts us in a very strong position given the favorable investment background just now. So

26:14 we're well capitalized to continue our growth journey in the context of favorable market conditions. And my final slide looks at our new dividend payout calculation, just to give you all a feel for how this is going to work. We've looked at this in a way to try and avoid situations where the interim dividend could be significantly higher than the final dividend. So we've crafted a calculation, which should see a smoother dividend per share level at both half and final year. And that in its simplest form looks to take the average of the two preceding six month periods outlined in the diagram.

27:06 The dividend payout ratio range on free cash flow will be between 255%. And I think

27:15 a payout ratio for a royalty company is much simpler to calculate than a payout ratio for an operating business because basically, it takes our portfolio contribution less our cost base, which remains pretty static, and our finance costs, which depend on levels of leverage. So really, there's only three inputs into calculating the free cash flow range. So it should be less volatile than operating businesses who have to worry about margins. So we felt quite appropriate for our business model. Looking at what that may mean for 2024, based on the operator guidance that's recently been announced, which kind of flagposts volume growth to come across the portfolio in 2024 and taking a view on commodity prices where they are now, that could produce a dividend per share of around about $04 per share in 2024, maybe a bit higher depending on pricing where things are right now.

28:14 And the payment profile of that, we think, will result in payments paid twice a year, once in early January and the second payment in early July of each year. I'll pass back to Mark. Thank you, Kevin. So turning back to look at our portfolio. And Kevin and Avaya, we both mentioned that, 2024 is expected to deliver volume growth. And this slide gives you a feel for which assets and how much. At Kestrel, you sort of the range here is in line with what we communicated earlier this year As we get through

28:59 and and afterward the first quarter, we'll have a it looks like the Vocastro volumes are going to be or could be smoothed more so across q one and q two. We'll we'll just have to wait and see until we get further information from the mine operator. That being said, thereafter, in h two, we don't anticipate at this time anyways material contributions from Kestrel until once again in h one of of next year. And I guess, strategically, you know, this is why we think it's really important to add more assets that are in production to this business just to create a bit more stability in the revenue line.

29:45 We've always known that the Kestrel royalty was going to run out, well, run out. We've always known that the Kestrel royalty would would would no longer generate cash flows for ECORA when mining operations materially moved out of the ECORA royalty area. And so the strategic imperative to get new sources of income and to build out the portfolio with subsequent areas of growth remains. But so that's nothing new, but that's certainly something that we're focused on as part of our new capital allocation framework. Voisey's is an asset that, you know, we we really, frankly, are disappointed with the volumes at Voisey and and the pace of the underground ramp up.

30:32 It's taken more time certainly than we thought, certainly more time than the mining, operator initially thought as well. Although we now seem to be much closer to a ramp up than than we were last year anyways, where this year, we anticipate 12 to 16 deliveries of cobalt throughout the year and then scaling up in the next couple of years to a steady state of around 40 deliveries per year. That's around four times as many as we got last year, so that's a pretty material source of near term income growth into '24, '25, and '26. The other thing to note about Voisey's Bay is that this product is alloy grade material for the most part. Not all of it, but it's alloy grade material, and what isn't is standard grade.

31:22 The alloy grade material today is about 30 to 35% higher in price than what's on the LME. So I would just encourage folks. You know, it's not a stable relationship to say that the the alloy grade price is always higher at 35% than the LME at at a fixed percentage point, but the alloy grade price is always much higher than the the sort of standard grade products and the LME generally. So that's that's that's an important point to note when one is evaluating the the potential revenue contributions from Boise's Bay today and into the future. Mantos is an asset that we've been overall pretty happy with.

32:07 From a cash flow perspective, that's delivered broadly in line with our expectations when we bought the asset and potentially has a a whole lot more to give. The asset this year is expected to ramp up. And thereafter, the steady state annual production rate is really a phase one steady state annual production rate. There's further production up upside, following a potential phase two expansion of that mine. The Maracas asset last year, no, not too far away from the levels the year before. For this year, it kinda sounds like it'll be roughly in the same place. Vanadium prices currently appear to be closer to the bottom cyclically than most definitely not at the top. Vanadium price is somewhere in the range of 6 to 7 currently, and historically, has ranged from 3 to, call it, above 30.

33:07 So let's see on pricing. That one could tick up for us the next couple years. Kevin already discussed four miles, so I won't go into detail here. And last on the page is we've clearly described, you know, the volume potential from our near term growth development, royalties. The POE one is, of course, one that we haven't materially funded. I think that's an important thing to keep in mind. The POE royalty would materially only be funded at the time of construction financing. So from a returns perspective, return on invested capital perspective, that one is far less sensitive to the start date. We would, of course, love to see that one come into production as soon as possible. That's more of a function, however, of, wider economic conditions and the, financing timeline, for this process for for for for the project.

34:05 You can see here on the next page our copper growth pipeline that goes into the, next two decades, and this is something we're really, at the core of our business, really happy to have. This is within the wider royalty sector, the best copper growth pipeline that that exists, in the wider royalty sector that includes sources of growth both in terms of production, near term, and longer dated. Copper, as a commodity, we've mentioned, is has really compelling long term, demand fundamentals, and as a as a end market is, you know, in in in any electrical application. So it's it's very diversified, as an end market, and, you know, it's expected to see substantial demand growth, in particular from things like grids, even AI.

34:58 I mean, if AI should arise as and contribute to

35:06 society in a way that's forecast, there's there's a huge amount of copper required to make all those electronics run. We've included this slide here on our nickel exposure to give investors a feel for, you know, how our exposure looks today in the context of really challenging nickel markets. And this really highlights the the importance of, and why when we deploy capital, we target assets that are well situated in the cost curve. The West Musgrave asset, which is currently 21% complete in construction, sits or is expected to sit amongst the lowest cost producers in the world. And even at today's spot nickel price, the orange line, it were to be in production, could still generate, you know, positive cash flow and withstand, economic cycles. Similarly, Voisey's Bay, while we don't have nickel exposure at Voisey's Bay, it's cobalt. We indirectly have the nickel exposure as the the cobalt units come with nickel.

36:09 At full ramp up, expected to be in the second cost quartile, you know, mine that can withstand volatility and similarly POE. So, in in the royalties, as as many of you will already know, it's not just the right commodity exposure, but it's it's crucial to have exposure to assets that are well situated in the cost curve. BHP, BHP has indicated currently, as I mentioned, that the project at West Musgrave is 21 complete. They're considering the timing of that project. They stated publicly that they ended they will announce further guidance on the first production date sometime in the first half of this year.

36:57 One thing that, you know, we really like about the West Musgraves project is that that asset is, at today's prices, around 40% copper, 60% nickel, which, of course, is, just contributes towards that asset's resilience, and that is not dependent on the the performance of a single metal. This is a a new royalty for most. We've had it in our portfolio for a long time, but until recently, we there wasn't much work that had very limited work had been completed on this where we have a royalty. Or this royalty area is on some grounds, owned by a Canadian uranium company called NextGen, listed on the TSX, billion plus dollar market cap. And they've built a business really around a project called Arrow, which you can see on the map.

37:53 Recently, they've they've explored within, the ECORA ROYALTIES area, which is highlighted in sort of the reddish color on the slide. And they intersected what is a highly prospective uranium discovery. Nextgen themselves highlighted that this discovery is significantly in all metrics than the Arrow deposit when that deposit was first discovered. So while it's a drill hole, it is very, very, very early days. So a lot more work to be done to proven to prove that this this is royalty is substantial value. It's just a really exciting development for us, and we also think it just goes to show how important it is that royalty businesses are diversified.

38:45 On this slide, we've included the key things to watch out for in the over the course of this year. You can see we've the first thing at Voisey's is the ramp up. Right? And that's expected to occur over the next twelve to eighteen months. At West Musgraves, further information from BHP in relation to the timing of first production. Santo Domingo is an asset that's going very, very well. We can't stress enough how much, how delighted are we are with the performance of this asset to date. It's an asset that's about, you know, 20 to 30 kilometers away from the Manto Verde mine, also owned by Capstone Copper, recently built on time, materially on budget, and they plan on using the the same team to to build Santo Domingo should they proceed, with an final investment decision.

39:30 So the first thing to watch out for in relation to Santo Domingo is an updated feasibility study expected in the first half of this year. And thereafter, Capstone Copper have, targeted the final investment decision for the second half of next year. And in advance of that, Capstone have said they've already started working on the detailed engineering for the project. So this slide here in the context of a revised capital allocation framework, you know, we've included it to help inform what people should expect in terms of what transactions we might look for and what we might look to add how we might look to add to our portfolio. For those who have been tracking ECORA, this actually isn't really anything that's new.

40:17 For producing and construction stage royalties, we'd be looking to do investments larger than 25,000,000. In the past, the largest thing we've done has been well in excess of, you know, a 100,000,000. So there's no immediate cap at 25 by any means, but that's that's the sort of tickets we'd be looking at there and above. The next thing we'll look to do for assets that are very close to production stage but not at production stage yet, investments in the range of 10 to 25,000,000. And for earlier stage opportunities that are at study stage but certainly far more advanced than exploration, investments of 10,000,000 or less. In terms of the commodity selection, what we're looking to do at ECORA is build exposure to a suite of metals and commodities, industrial minerals, other, that are are required for an energy transition thematic.

41:14 And that, you know, is very, very broad. It's much broader, for example, than commodities that go into a battery. I mean, this ranges from commodities required to build renewable power or low carbon power to the distribution of that power. That includes things even, frankly, you know, liquid LNG carriers. The the the the third leg is commodities which are somehow connected to the consumption of electricity. Right? So when you think about what commodities we actually target, well, we don't target precious metals in large part because there are a lot of people targeting precious metals royalties, and the investment returns are very, relatively speaking, compressed by virtue of how competitive the precious metal space is, and we don't target fossil fuels.

42:11 Other than those baskets, most commodities, if not all, fall into our if their mind fall into our remit. So it's a very broad basket of commodities. So in summary, what we have, tried to communicate today is that market conditions remain very favorable to royalty partnerships. We've updated and communicated a capital allocation framework, which to date has been, for the most part, very well received by the majority of our institutional shareholders. We've also announced a $10,000,000 buyback opportunistically given the equity is trading at a substantial discount to net asset value.

42:57 We anticipate year on year volume growth from our producing portfolio in the years ahead. And beyond that, growth from our near term development portfolio, we intend on accelerating the deleveraging of our balance sheet, absent further acquisitions. And should we proceed with acquisitions, thereafter, remain to retain discipline to to to to deleverage. And more generally, when you look at the basket of our commodities of our portfolio, in particular copper, which is the core of our net asset value, but but amongst others, there's a very strong alignment with structural demand trends that are expected to run decades. So with that, we'll we'll turn to some q and a. Mark, Kevin, thank you very much indeed for your presentation this afternoon. If I may just jump back in there before we move to questions.

43:49 Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while the company takes a few moments to review those questions that were submitted already, I would 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 your investor dashboard. Jeff, as you can see there in the q and a tab, we have received a number of questions that were both presubmitted ahead of today's event and a number that have made their way through during the presentation this afternoon as well. So firstly, thank you to all of those on the call for taking the time to submit their questions. And, Jeff, at this point, sir, if I may now hand over to you to chair the q and a with the team, and then I'll pick up from you at the end. Thank you. Thank you for that. We had a number of questions today on the buyback and the dividend and our commodity selection process, which I won't go into because they've hopefully been covered off by the presentation.

44:40 So if you did ask that question, it's not been ignored. It's just hopefully been covered off. We'll crack on with that as we've a lot of questions, and we probably need to be quite, I guess, brief to try and get through all of these when we're doing the answers. First up, maybe, hello. Could you please give us some details on the status of ECORA? You talked us through the next gen discovery. Does ECORA hold other other royalties in the Athabasca Basin? So on ECORA first. At ECORA, just to remind everyone, what we have here is the opportunity to fund the construction of that project should certain operational conditions be achieved. The prog we have not funded any capital into ECORA into in CORA, excuse me, at this stage. And that project, we don't anticipate those conditions to be achieved in 2024.

45:28 Although were they to be achieved, it'd be great news because those operational, thresholds it seems that the only investments being made are into green metals. We kinda touched on this, but why are we against investing in precious metals and industrial commodities? Maybe you wanna jump in. Mark seems to have frozen. Hi, Jeff. Please just bear with me while I reconnect Mark to the room. Thank you. Well, if we if we saw Kevin on the lines, maybe I'll jump to a couple of the financial questions.

46:15 There's one here. Are we canceling the shares bought back or placing them in treasury? We're placing the shares in treasury, Jeff, similar to the ones that we did previously. Those shares will not qualify or participate in dividends, so they won't form part of our adjusted earnings or basic earnings per share calcs. So those remain in treasury and available for reissue. And someone else has asked, would that be right in understanding we will not be making any further dividend payments in calendar year 2024? The final dividend of $0.02 $1.02 $5 per share will be paid. I believe that's going to be paid in June 2024. The interim dividend for 2024 will be announced with our half year results, which is early September, and that will be paid early in January. So there will be the final 2023 dividend to be paid in 2024.

47:11 Thanks, Kevin. With Peter, have Mark Bacchanow. Hopefully, all those disappeared again, so we'll give you another one, Kevin, in the meantime. Is the lithium decline in prices a good opportunity in the short term? In the short term, it is, yes. I mean, lithium, cobalt and others have had very volatile pricing recently. One of the advantages or opportunities for royalty companies is really to grow and scale businesses based on entry points into certain commodities. It beholds royalty companies to get the price and entry point correct. And of course, what that really means when prices are low is to look at projects which are very well placed on the cost curve. And that really is one of ECORA's USPs. We've got an amazing portfolio of royalties, which are very well positioned on cost curves, which can weather truly cyclical commodity price movements. And lithium is a gap in our portfolio. We'd love to get some. We're looking opportunities, as always.

48:09 Thanks, Kevin. Mark Backson, one Mark for you maybe. What's the plan for us to reverse the disastrous strategy going to one shareholder, which has seen shareholders lose over 50% of their investment value in the last year? Yeah. I mean, that's that's a tough question, but it's fair. And I think fundamentally is from a strategic perspective, we think our strategy has been spot on. And I can take you to this slide. The challenge today is not so much that the assets are bad assets. It's not so much that the investments have been bad. This the challenge is that the market is giving us no value for anything that's not immediately in production. So, you know, these market conditions are difficult. They're challenging. And, frankly, you know, Kevin and I, as individuals, have a lot of skin in the game. We've put a lot of our own private of our own capital into buying shares.

48:57 I personally bought more shares last year than I, took in pre in post tax income. So we, we we share the pain of where the share price is at the moment, but we don't think it's a strategic issue. And we think that further diversifying the portfolio for adding quality assets is is the solution. K. Maybe on that, someone's asked, why have we not supplemented income by investing in near term accretive assets? Yeah. Here, it's really a question of what's available to us, producing assets and fewer far between. And furthermore, the the returns on some of the producing assets are just not that compelling. So what we look for is the best available opportunity that's available to us. And in some instances, for certain commodities, things like copper, the best producing assets are owned by folks like BHP, and BHP don't really need an ECOR royalty. So to get access to a BHP royalty or other really high quality royalties, sometimes it means buying royalties on earlier stage projects, but of really, really high quality, with a view that a larger mining, company will one day develop those projects. Biscaychitas is a good example of being one of the largest undeveloped copper ore bodies in the world.

50:14 Now we were able to buy a royalty last year, and that's why we went in on it a bit earlier. Another question is, was saying, why do we limit the buyback to USD 10,000,000? Are they seeing more attractive opportunities in the market than ECORA shares at 50% discount to NAV? It's hard to say it's hard to imagine any opportunity being more compelling than, frankly, the ECORA share price at the moment when we look at the transactions in the royalty and streaming sector. The opportunity to buy our portfolio for a 50 to 60% discount is incredibly attractive. That being said, buying these shares, while it does deliver earnings per share growth, DAF per share growth, and actually DPS growth, dividend per share growth on our latest dividend formula.

51:01 It doesn't achieve diversification. So our buyback program is one that's tactical, but not contemplated to be repeated in the ordinary course. We would certainly hope that the share price is not gonna be trading at these levels where where it's such a big discount to NAV, for the first which which has not been the case historically either, although cyclically can occur in the context of very difficult market conditions. Question on a couple of questions on West Musgrave, which think have already been picked up, hopefully, in terms of the asset progress and BHP's current stance as far as we can tell. A couple of specific questions in terms of if the asset was to be canceled, think, what were the financial implications for us being? Would there be any impairments expected in the short term?

51:51 Sorry, Jeff. My line's a bit crackly. Could you mind just repeating the last one? Would we expect any impairments on West Musgrave if the project is delayed at all? No. Not at this time. I mean, if the project were to be canceled or in permanently deferred, yes, that could be the case. But the the by virtue of the entry point, by virtue of long term commodity prices, delaying the project by a few years at this time. We don't anticipate that to cause a material change to the valuation. It's something we'd have to see, though, at the time. BHP hasn't indicated an intention to stop development of that project at this time. So we don't anticipate that being the case. We'll have to see what BHP says in the next few weeks.

52:36 Okay. Switching to to Voisey's Bay. It's a question which I'll summarize here. It's quite a long question, but I think it's actually saying that with the, nickel price under pressure, and obviously the cobalt price and under pressure as well, would we consider looking to market our cobalt to take physical delivery of it potentially to, direct to people like German car manufacturers or other people who might be an interesting end user for the cobalt. And the cobalt premium price. Yeah. The we we received today, actually, as I mentioned, a premium price to standard grade and even to the LME price, not necessarily because of the quality of the product to the LME, but the LME is not a great indication of where the actual cobalt trades. And our cobalt is very strategic. There's been a lot of interest in our cobalt by virtue of its providence. It's from Canada.

53:27 And second, it has a really low carbon footprint. So in the future, that's something we'll consider, but not contemplated in the next year or two. Thanks, Mark. So I can do the one. So I'm just trying to make sure this good. Would we invest in hydrogen? How would we invest in hydrogen? Hydrogen is an interesting commodity. And, you know, it's not it's the one that that we're not ignoring. I think the one thing about hydrogen that has kept us on the sidelines is that it's a really new industry, and it's, in theory, very scalable. And the risk of going into hydrogen today is that what might be a low cost operation today is potentially a high cost operation of tomorrow if new entrants come in, with sub substantially larger scale and thus lower unit costs.

54:16 So it's something that we'll monitor, and and it cannot be ignored just by virtue of how important it could be to a low carbon energy future. But at this time, it's not something that we're actively, evaluating. I have a question here regarding the potential air pocket. Kestrel rolls off. What scenario analysis has been done regarding potential minimum cash flow we may experience or timing of the trough? Yeah. So as it sits here today, the base case is that should be very minimal. Kestrel rolls off towards the end of twenty six. The the the the the base case, as I said, is that, you know, there's not a sizable air pocket for lack of just to use those words.

55:02 The solution really is to buy more royalties. It's to further diversify the portfolio. It's to buy more producing royalties, and it's to buy more royalties that are expected to come online in the in the short to medium term. And that, in part, really has informed our capital allocation revision or updated capital allocation framework. And another Keshav question. I'm saying there's 1,600,000 tonnes of coal mined in the private royalty area in 2023. How much coal is left in mined in in that area until depletion in 2026? And maybe it's worth stating that the mine itself will carry on beyond 2026. It just moves outside of our private royalty area at that point. So, kind of take on how much you got left in our area till 2026. Yeah. I think we're restricted on what we can say publicly here. But, you know, as as to answer that question, you know, we can reference production last year, and we indicated we anticipate, higher production volumes this year. We indicate a a step up in 2025 from Kestrel.

56:01 And then in '26, lower volumes. I think we're gonna be in a position to provide more detail on what those volumes are likely to look like in '26 as we get closer to it. But for the next two years, hopefully, that gives you a good feel for what we can expect. Okay. And why why do we pump out news about copper prices when the main current producing cobalt asset has seen a spectacular fall in price? Yeah. I think there, it really comes down to what is our net asset value, and and copper is by far the most important commodity by by long term exposure at ECORA. The cobalt price is down. That's correct. Currently, this year, it's averaged around $17 per pound on the alloy grade price, which I mentioned is very different to the LME.

56:47 Our long term investment in cobalt contemplated a long term price in the range of 22 to 23. And since we bought that stream, we've seen pricing range from where we are now to $40 per pound. So, actually, you know, while we're not thrilled with cobalt at 17, cobalt is a commodity that will go through cycles. The issue really at Voisey's has been the slower ramp up in volumes. But that back to the the question, why are we excited about copper? We're excited about copper because it's it's already entered this year into a commodity supply deficit, and the outlook for copper is and supply growth is enormously constrained. And so, while our copper exposure is not a huge focus of the business today necessarily as a revenue contributor, the future of this business is intrinsically linked to copper.

57:41 Last couple of questions. I'm conscious of time. Where did the NextGen royalty come from? Was it stated somewhere we owned a royalty over that area, successful for the public? Are there any other royalties that people don't know of? And where can we get access over all of the royalties that we hold? Some of our royalty competitors have long list published about areas they hold royalties or rights over. Yeah. So the the Athabasca royalty came as a suite of royalties, and that actually was acquired long before either Kevin or I joined the business, in the sort of pre 2010, I wanna say. It's, early stage land. At this stage, the majority of it is sort of unexplored. In terms of the other royalties we hold, we can certainly consider providing a full list in in our in in somewhere on our website, for example, if if if folks are interested to better understand that. In the past, it just hasn't been an area of focus simply because many of these royalties are so long dated.

58:37 Folks have not attributed much value to them. I mean, you look at where the market is today, we don't the market isn't attributing value even to assets that are, a couple years out, let alone, you know, potentially a decade or more. Maybe one final question. Why sorry. One, why do we not take a more measured approach to investing in green projects? And what will we do to ensure such gambles are not taken again? Yeah. So a green project I mean, as I mentioned earlier, every green project other than precious metals and hydrocarbons, I mean, that's, like, basically every commodity. So, you know, we wouldn't characterize the that investment strategy as a gamble, by any means.

59:26 Hello. I'm conscious we're up on 03:00. So with that, if there's any questions anybody particularly wants those haven't been covered off or answered, then, please send them into the IR email address, and we'll try and get back to you with those. With that, I'll hand back over to the operator. Perfect. Jeff, Mark, Kevin, thank you very much indeed for addressing all of those questions that came in from investors. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add, any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out on the platform. But, Mark, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great. Yeah. Well, first of all, thank you for joining us for our full year's results presentation.

1:00:13 A lot of material to get through. And so, you know, along with some technical issues, if you feel your questions haven't been addressed, really echoing the comments that were made earlier, please send them through. Please share them, and we'll we'll endeavor to come back to you with a fulsome response. Perfect, Mark. That's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations? This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of ECORA ROYALTIES PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.