Ecora Resources PLC (LSE:ECOR, TSX:ECOR, OTCQX:ECRAF)highlighted the benefits of investing in royalties for commodity price exposure amidst the inflationary environment in its fourth-quarter trading update.
Against a backdrop of strengthening commodity prices through most of 2022, Ecora saw its portfolio of royalties generate US$143.1mln over the full year up 67% on 2021 – despite its fourth quarter contribution reducing 48% from the preceding quarter, at US$17.8mln, due to reduced saleable volumes from the Kestrel mine, in Australia.
Nevertheless, the full-year figure is a new record for the company and following royalty acquisition of additional royalties it expects to generate greater returns going forward.
“In recent weeks we have witnessed the impact of inflationary pressures on profit margins across the wider mining sector, highlighting the benefits of the royalty model which provides direct exposure to commodity price performance … We have the balance sheet flexibility to execute on any transaction opportunities that meet our investment criteria,” said Ecora chief executive Marc Bishop Lafleche in the update.
He added: “Whilst the Q4 portfolio contribution was impacted by lower saleable production volumes at the Kestrel mine, the portfolio generated a record level of income during 2022, driven by stronger commodity prices, a large portion of which was reinvested in the acquisition of a high-quality portfolio of advanced stage copper royalties from South32.
“The key royalties acquired in this transaction, West Musgrave and Santo Domingo, have both moved towards production during Q4, with the start of construction activity at West Musgrave representing a key milestone.”
Looking ahead, Ecora told investors it expects further portfolio strength given that copper, coking coal, nickel, vanadium and uranium prices have started the year strongly though cobalt prices have softened in January.
The company noted that Kestrel’s saleable volumes, within the area subject to royalty, are forecast to be down by around half compared to 2022.
At the Voisey’s Bay cobalt operation, the company said it expects to see 13 to 15 deliveries in 2023, compared to 19 last year.
Production volumes at the group’s other royalty assets are expected to be broadly in line with 2022 levels.
Ecora noted that it is currently in discussions with the operator for its EVBC royalty which seeks a short-term deferral of a portion of cash royalties due to the operator’s margin pressures.
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