Ecora Resources transitions to lower profits

Ecora Resources (ECOR) had warned investors the Kestrel royalty would be on the way out, but the first-half results show what a choppy transition period that might entail. The interim operating profit was down almost 60 per cent to $32mn (£25mn), as production moved from the area covered by the Kestrel royalty and coal prices dropped. Weaker metals overall also knocked sales receipts. 

The company said short-term Kestrel revenue “will become more volatile on a quarterly basis as operations move in and out of the group’s private royalty area”. The cobalt royalty on the Voisey’s Bay mine in Canada also saw a significant decline ($3mn compared with $14mn) as output fell and cobalt prices tumbled. Chief executive Marc Bishop Lafleche was sanguine about this, saying cobalt had been left in the ground while prices were weak. 

He added that this was a clearly planned transition period for the company, which also includes a “buildout of copper” assets, such as the new royalty on the Vizcachitas project in Chile. Production on that is many years away, and will require a bigger company to come in and fund the estimated $2.4bn build cost.

But there are new mines that should start contributing to revenue within two years, like BHP’s (BHP) West Musgrave nickel and copper operation. RBC Capital Markets analyst Tyler Broda also highlighted the $156mn in liquidity "available for deals" that could go to in-production assets. 

We have been bullish on Ecora given its strong earnings and portfolio of upcoming mines. The dividend has been maintained here, and should be fairly stable despite the more volatile cash flow. The consensus forecast is for cash profits of $54mn for the full year, a return to 2019 levels. Buy. 

Last IC View: Buy, 127p, 29 Mar 2023