Deterra Royalties Limited (DRR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Deterra Royalties Half Year Results 2022 Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, 22nd of February 2022. I would now like to hand the conference over to your first speaker today, CEO and MD of Deterra Royalties, Mr. Julian Andrews. Thank you. Please go ahead.

Thank you. Good morning, and thank you all for joining us today for the release of Deterra's first half 2020 results. I have with me Brendon Ryan, our Chief Financial Officer; and Matthew Schembri, who leads our Investor Relations. We released a presentation pack with the results this morning. I don't propose going through on a page by page turn, but rather, we'll give a short overview, stepping briefly through some of the key slides and then move to questions. I'll begin by saying that I'm pleased with the performance of the business in the first half. We have a simple model, and so in many ways, it is a simple message. Operationally, the underlying assets are performing well, in particular, strong production and sales volumes from the Mining Area C operation as a standout feature of the half, with production up 45% and sales volume slightly more on second half 2021. This reflects the ramp-up of volumes from the South Flank expansion, which BHP notes remains on track to deliver the full additional 80 million wet tonnes per year by mid-2024 and reached a peak run rate of 45 million wet tonnes per year during the half. These volumes have underpinned another strong half financially with revenues of -- sorry, $92.8 million. We've also been active in pursuing growth opportunities. We continue to evaluate options to add royalty assets to the business and have increased our investment in that activity. In that regard, we announced this morning that we have refinanced our existing $40 million facility, increasing the credit limits to $350 million, which will provide us with additional flexibility to act on accretive opportunities. The fact that we were able to do so on competitive terms and reduce the overall weighted average margin is a reflection of the strength of both the MAC royalty and the Deterra business model. Third, we continue to prioritize shareholder returns, and the directors have declared an interim dividend of $0.1168 per share fully franked, which represents 100% of the net profit after tax for the period. As I said, it's a simple business model. We have a cornerstone royalty over a world-class operation with a significant growth profile still ahead of it, a lean corporate structure that supports high margins and a capital management approach that supports providing our investors access to the cash we generate. One other aspect of the business model that perhaps isn't as well appreciated is how it performed through the commodity cycle. For example, there's been an increasing focus on cost inflation in the resources sector of late, and I think it's worth making the point that our revenue royalty payments are driven by sales and so are not impacted by any changes in operating margins driven by cost inflation. In fact, to the extent they are reflected in pricing, we leveraged to those factors as any increase will be reflected in our royalty receipts. With that, I'll hand over to Brendon, who will cover the financial results in a bit more detail.

Thanks, Julian, and good morning, everyone. My chart is twofold, firstly and easiest is to take you through a fairly clean and simple set of results; and secondly is to update you on our new credit facility and discuss the capital management framework. If we can first turn to Slide 8 so I can address the financial highlights for the half year period. As you can see, total group revenue for the period was $92.8 million. This amount includes MAC royalty revenue of $92.7 million, attributable to the 1.232% revenue base royalty only and circa $180,000 in revenues from our 2 smaller Western Australian minerals and royalties. The $22.8 million revenue delivered a healthy $88.7 million in earnings for the period. This represents an EBITDA margin of 96%, driven by the small and low overhead structure of the royalty business model. Finally, this resulted in both record NPAT and dividends for the period of $61.7 million. Based on this result, the Board have declared a fully franked dividend of $0.118. And I'll remind you, this represents 100% of NPAT and confirms our commitment to return to surplus cash flow to our shareholders. Moving quickly to Slide 9. I'd like to discuss the performance of Mining Area C. Overall, you can see from the yellow line on the chart the significant ramp-up of the MAC asset by the South Flank expansion has now commenced. The ramp-up over the past 6 months in -- over the last past 6 months resulted in record sales volumes of 45.8 million tonnes delivered by the MAC -- by MAC in the December half year period, setting consecutive sales records in both the September quarter of 21 million tonnes and the December quarter of 24.8 million tonnes. Based primarily on these record sales volumes, total MAC revenue for the half 1 also set a new record of $92.7 million. This was further aided by record iron ore prices in September, although as you can see, a material decrease in price was seen in the December quarter. On Slide 10, we've tried to reflect a simplified illustration of the P&L. What this slide demonstrates is the lean cost structure and transparency of cash flows distributed to shareholders. On the revenue side, as discussed earlier, we showed 2 sources of cash that contributed to $92.8 million. On the right-hand side, we showed the distribution of these cash flows. Total costs for the half year period were $4.3 million. Of this, $3.7 million relates to the normal ongoing operating expenses with a further $0.2 million for D&A. We have also specifically called out in our accounts the $0.5 million in one-off BD costs. This reflected increased BD activity in the first half year period. Net tax of $26.8 million reflects an effective tax rate of 29%. And as per prior page, this resulted in a net profit after tax of $61.7 million. Now turning to Slide 11. The objective of this slide is to show how the capital management framework prioritizes shareholder returns. As you'll see from the chart, the current $61.7 million dividend builds on the prior period dividend of $60.9 million and $33.3 million, all of which represent a payout of 100% NPAT for the respective periods. In our release, we have tried to further clarify our capital management framework, being we will prioritize shareholder return whilst understanding the intent to invest in growth. In doing so, we will continue to return all surplus shares -- cash from royalties to shareholders, franked to the maximum extent possible. We will optimize the use of debt for future acquisitions. The intention is that the cash flows from the future of new royalties will, at least, in part, be utilized to decrease leverage. We expect that all new royalties will be able to contribute to our stand-alone value accretive investments and will be capable of providing returns greater than their respective cost of capital. We'll also maintain a target leverage within the range of 0% to 15% of enterprise value over time. This leverage ratio reflects the desire to maintain a strong balance sheet and protect the option to act flexibly when value-accretive opportunities arise. On Slide 12, we describe the new capital management framework with respect to the funding of new acquisitions. You will see as part of today's release, we have also announced the refinancing of a new $350 million bilateral credit facility. The new credit facility increases total credit limits from $40 million to $350 million; extend existing maturities to 3, 4 and 5 years; build relationship with Australian and international banking group with strong resource financing credentials; and demonstrates how competitive process has allowed us to improve terms and conditions and pricing. The net result for Deterra is that, in addition to increasing quantum, we have also increased our weighted average maturity profile plus reduced our weighted average margin of our prior facilities. We are very pleased with the outcome of the new increased credit facilities. The excellent outcome reflects both the underlying quality and creditworthiness of the MAC asset plus the lower risk nature of the royalty cash flows. The new facility will provide Deterra with increased flexibility to act on growth opportunities. The framework also aims to ensure that we do not cross-subsidize new growth opportunities with MAC revenues, ensuring that all new investments must be capable of providing returns greater than their own cost of capital. Hopefully, you'll recognize from these slides, we have worked hard to deliver upon our commitments in terms of corporate structure. We continue to run a lean and simple team designed to maximize returns to shareholders. In terms of capital structure, we retain a conservative balance sheet with a new $350 million facility designed to increase options to act flexibly for value-accretive opportunities. And in terms of shareholder returns and declaring a final dividend of $0.1168 per share fully franked, we continue to deliver on a record of maximizing return on surplus cash flow to our shareholders. With that, Julian, I'll pass it back to you.

Great. Thank you, Brendon. Turning now to growth. I mentioned earlier that we have significant growth in the business already through the Mining Area C royalty. As I said, this is a world-class asset. It's low cost and long life and has significant leverage to the more than doubling in production from FY '21 levels that we anticipate by mid-2024 as South Flank continues to ramp up to full capacity. We've provided a sense of that leverage in the pack on Slide 16, where we set out a very simple table showing how receipts might look under a range of sales volumes and pricing outcomes. That being said, an important part of the business model is also looking to add other growth options to the portfolio. And as you'll recall, we were established with a broad growth mandate in terms of commodities. But as we've said many times, we see little value in focusing on commodities such as precious metals that are highly contested and where we don't feel we have a strong source of competitive advantage, and that very much remains the case. As with any business, we're continuing to refine our focus on growth opportunities. And our activity to date has been focused on the areas where we think we can really bring value to transactions, which is in the bulk base and batteries metal space. The deal flow that we've seen over the half has been strong, particularly in secondary opportunities. And we've seen and evaluated a number of opportunities in this period, although none were sufficiently compelling for us to act on. We've seen -- and execute. We've seen substantial competition and full pricing for assets that have transacted. But to be clear, it remains very important for us to maintain our discipline and patience as we pursue these growth opportunities and stay focused on their potential for value accretion. Lastly, at our annual results last year, we outlined our ESG framework. We're continuing to implement that framework and have taken some important further steps in the half. We've been accepted as a signatory to the UN Global Compact. We've issued our first modern slavery statement, and we're well advanced on our commitment to net zero operational greenhouse gas emissions by the end of the current financial year. With that, I'll wrap up the introduction and be happy to move to questions. Thank you.

[Operator Instructions] Your first question comes from the line of Rahul Anand from Morgan Stanley.

Look, 2 quick ones from me. You talked about having looked at opportunities during the period. Are you able to talk to a few maybe not specifically related to transactions, but perhaps to commodities? And then if you do look at Slide 14 and 15 -- sorry, Slide 14, if we do apply the geographical preference that you have on to that pie chart of the nonprecious-focused listed companies, what sort of a reduction do you see in the available space that you can bid on? That's the first one. Let me come back with a second.

Sure. Okay. Thanks, Rahul. In terms of your first question about the opportunities we've looked at, yes, obviously, we won't talk to specifics, but we have -- as I mentioned, we have seen pretty strong deal flow in the secondaries market space. So we've seen a number of opportunities come to market, whether that's as part of a broader portfolio or individual assets. And in terms of the question around where we're seeing those commodities, there has been quite a bit of activity, particularly in the base metal space. We've also seen some opportunities in bulks. In terms of the geographic overlay on the pie chart, look, I must admit it's not a clear answer I can give off the top of my head. But when we talk about our geographic preference, we are focused on jurisdictions that we think are more stable and more well established. So that's Australia, that's North America, it's most of South America. And when we look at the sort of overlay there on both commodity production, those are major mining jurisdictions. And I think that there are a significant number of opportunities that we see in those geographies.

Sure. I mean perhaps if I follow up on that second question then a different way. You did acknowledge that a lot of the opportunities are fully valued. And if we take a step back and look at the strategy, you have very bankable cash flows going forward from Mining Area C. Does that perhaps allow you? Or should you think about early-stage assets, exploration assets because you have the ability to hold that royalty for a period of time before it starts generating the cash flow and perhaps you can find some better opportunities in that space? I mean what is stopping you from looking at perhaps early-stage assets that are not under construction yet, but perhaps have a prudent study in place and are now going into the funding stage?

Yes. Look, you're right. Rahul, we certainly do. We have very strong cash flows, and that puts us in a position where we really can be very patient and disciplined about how we think about investment opportunities. And that applies across the whole range of development stage. At the moment, we are more focused on those producing or near-production opportunities because we see those as they provide the cash flow that will support the business going forward over time. To be clear, we have seen early stage opportunities. I think the way that we think about the value they can deliver is perhaps a little bit different because they clearly have quite a different risk profile. But the other point to make about those as well is typically the earlier stage that you invest. The value is you're taking greater risk, it's earlier stage, but typically, the quantum invested is perhaps a little bit lower.

The next question comes from the line of Chen Jiang from Bank of America Merrill Lynch.

Just a follow-up from Rahul's question. Just on the primary royalties versus the secondary existing royalties, would you be able to provide more color on the market? Like you mentioned focus on battery materials and the bulks. Would you consider coal given you have -- if you have ESG mandate? That's the first question. And secondly, just in regards to your capital management program. So any cash flow from future projects -- I mean from the future of royalty transactions? Is your priority to repay debt or as funding for potential M&A or return back to shareholders? I have another one after that.

Sure, sure. Thank you. I think just to be clear, you asked a question about coal or maybe just address that first. I think we've been fairly consistent in saying that we don't look at coal opportunities. They don't fit well with our ESG framework. So we don't look at coal. The broader question about the primary versus secondary. They are quite different markets in terms of the competitive dynamic. So in the primary market, we would be looking to act as a source of funds for a miner or a developer. And so the competition is generally with other sources of capital, whether those are debt or equity. Clearly, those other markets go through periods where they're more strong and less strong. And we believe very strongly that the royalties and streams have a place to -- have a place in funding stacks for most projects. But clearly, the competitive dynamics of the primary market are quite strong. Capital is clearly relatively freely available from other sources. In terms of the question about capital management, I mean the intention is that cash flow can be used to manage our balance sheet, and we've been, I think, quite explicit today about where we see that leverage range on the balance sheet. But I might ask Brendon to address that one in a little bit more detail.

Yes. Thanks, Julian. Yes. No, the intent of new assets is that cash flow from those new assets will go back towards decreasing leverage. We've set a framework where we've got targets around our leverage ratios. So depending where we are -- so there is flexibility within that to sort of -- to adjust depending on where we are. So if we were at the higher end of the leverage ratio, we'd obviously be trying to sort of delever the balance sheet so that we can actually be ready to participate in the future, whereas the lower end, we may keep some debt on the balance sheet as well. So it depends, but the intent is to make sure that new acquisitions are value accretive in their own right, can more than pay their cost of capital, let alone the cost of debt in the new facility and that they can sort of help pay themselves back while still maintaining the MAC cash flows so they can be pushed back to shareholders as best possible.

Yes. So I might just add a little bit to -- I'm not sure I fully addressed your question about those, the primary and secondary market. To be clear, we see those primary opportunities as a very important area for us over time. And we certainly are -- we're spending a lot of time and effort laying the groundwork for those and pursuing some opportunities. To be clear, we have seen some opportunities. It's just that the nature of the business model is different sectors will have sort of different competitive forces at different times. And so we're seeing a lot of secondary opportunities. Primary market perhaps is not quite so active at the moment, but that -- those markets obviously evolve over time as well.

So do you think primary market is more -- I mean primary royalties are more competitive than secondary royalties given most the primary are focused on precious metals?

I think I wouldn't say they're more competitive. It's just a different dynamics, somewhat different players to an extent. Certainly, in terms of the deals that we see written globally, many of those are in the precious space. But certainly, a part of our business model and our thinking about our strategy is that royalties and streams are potentially a very powerful form of funding outside of the precious space. And we see a real opportunity in that. And to be clear, we think that sector is -- has been underserved historically. And we see a niche there for us to look to explore further an area that we think hasn't had the same level of service.

Chen, to your point, primary royalties and precious metals, they're more frequent at the moment. That's because 90% of the market is focusing on primary royalties in the precious metals space. So we do think there's opportunity there to sort of -- to help other companies in other commodities to sort of use a royalty funding mechanism as well as part of their arsenal of project financing sort of options.

Our next question comes from the line of Robert Stein from CLSA.

Great set of results. Just a question on the acquisition strategy at this point in the cycle, noting the increased liquidity. Is the funding strategy inherently procyclical given currently commodity prices are at FX, so if you do go for a secondary royalty, you're paying premiums to acquire those? And secondly, through funding primary royalties, whilst you are getting in earlier in the life cycle of an asset, you're, in effect, crystallizing high inflationary and escalatory cost drivers that are currently present in the jurisdictions that you're focused on? And then the second question I have is around -- then a follow-on question around liquidity.

Sure. Perhaps we'll address the first one. So in terms of the facilities that we've announced today, clearly, we've increased the limits. We saw an opportunity to put those facilities in place. And we're able to do so in a way that's not only reduced our weighted average margin but has actually pushed out the tenor as well. Yes, I think that the -- one of the things that's very apparent to us and particularly when we talk about primary market opportunities is having liquidity is very important to the counterparties we're talking to having liquidity on our behalf. Clearly, the ability to be able to commit funds with a degree of certainty on relatively short time frames is advantageous when we're having those conversations. And to be clear, liquidity at this level is -- it certainly lines up with our target investment parameters, but it's also when we look outside of the precious metals-focused players, it is -- we believe that this is something that's a potential differentiator for us relative to others in that space. In terms of is it -- is the strategy sort of inherently procyclical, I guess I'd just come back to the comments that I think we've made all the way through since the company was established, and that's around patience and discipline. And that we are very conscious that the opportunities we look at will deliver value over the long term. And so we need to be very focused on how they deliver value over the long term and how pricing may evolve in the medium and longer term rather than be distracted by short-term movements in pricing. And that's very much reflected in our approach, which is to stay disciplined and not chase assets.

I think we've also, between the synergy cycles as well and what we're chasing long life, low-cost assets ideally because they sort of work their way through the cycle better as well as the fact that more of the value is in the long term sort of nature of the asset rather than the shorter term through price [ lineups ].

Okay. I think it is reassuring to hear the patience and discipline aspects. So then I guess the secondary question then is on the liquidity and increasing that. Are there any sort of covenants or restrictions around being able to access that liquidity if commodity prices roll against you?

Listen, we -- the covenants and Ts and Cs on the facility are probably commensurate with the facility of this size and nature in saying that they are not very restrictive and there's nothing to restrict us, apart from normal sort of ratio test that we would have to sort of need. So no, I don't believe there's anything there that will sort of limit us from participating, particularly with the growth profile of the Mining Area C from participating in -- or using the facility even if the prices did drop.

So you can keep your powder dry, so to speak?

Yes.

Yes. Absolutely.

Next question will come from the line of Matt Greene from Credit Suisse.

Just I guess starting off with the growth theme here. Look, I appreciate you're seeing some transactions that are being fully valued. You've done the work on them internally, I'd imagine. So -- and just based on this work and the headline numbers that these opportunities have been transacted at, are you able to give us an indication of the range of IRRs that your peers are willing to pay in this market?

I think the range is exactly that. It's a range. It's very difficult to talk about IRRs without sort of talking about specific opportunities. And I think in terms of announced deals, I think that you see even within those potentially a bit of a range of implied IRRs. But I think what is fair to say is that IRRs probably have been coming down a bit over the past 12 or 18 months, particularly in the precious metals space. But when we think about how we look at those opportunities, it is about value accretion. To the extent we see assets that we really like, we're prepared to put a lot of time and effort into evaluating them and looking to be competitive. But we're not going to chase assets. We're not going to look to try and take x simply for the sake of it. We have growth in the profile through South Flank. We have strong cash flows and we don't need to invest for the sake of investing and we won't be doing that. As Brendon said, I think we've all been through a few cycles. We know that there are going to be better times to invest and times that perhaps it's good to invest and we'll make sure that we're not only investing in the right opportunities, but investing at the right times.

Okay. Got it. And then just on provisional pricing, you saw a bit of a negative peak in the December quarter. I'm sure you're getting more granular pricing information from BHP. So how should we be thinking about PP adjustments going forward? Is there any sort of color you can give us on that? Are we simply looking at kind of spot price at the end of the quarter? Or is there some sort of forward-looking pricing being baked into that? Any additional context you give us, that would be great.

Yes. Listen, unfortunately, we don't have like absolute visibility into the nature of the BHP contract. So it's difficult to sort of give you a broad brush sort of method there. All I would sort of say, if you look at the last month of each quarter and the volatility in the month relative to the prior quarter, that is sort of -- that will sort of help guide as to, on a broad brush perspective, where the adjustments will be. And I think in this period, we sort of saw the September quarter -- last month of September quarter was sort of quite volatile. And the last month of the December quarter was slight volatile, and they've had to make adjustments there, which we've done the analysis over time, and we'll get it all back. But on any particular quarter or half, we may -- or some [indiscernible] quarter, we may be out by an amount which gets picked up in the next quarter. Sorry, I can't give you too much more than that because we don't have complete access to that sort of book -- their contract book, unfortunately.

Yes. Yes. No, that's helpful. And then just lastly, on your credit facility. You've highlighted $2.5 million of minimum cost. But are there any one-off refinancing or establishment costs that will come through in this half?

Yes. So to be clear, that $2.4 million number we put out there includes annual amortization of those upfront costs.

Next question will come from the line of Lachlan Shaw from UBS.

So just a couple of questions from me. So firstly, just around the capital allocation framework and in respect of new royalty streams vis-à-vis the credit -- the new facility. You've talked about new streams potentially paving their own way and then perhaps payout ratios on top of that back to shareholders. Give a sense of what those payout ratios or what you're thinking might accrue to shareholders from new royalty streams that do rely partly on debt financing.

Yes. So look, it's very difficult. And I think that's why we're trying to give a bit more sort of color around our thinking on the framework because, at the end of the day, it depends very much on the profile of the new investment in terms of its cash flow generation, its amortization schedule, sort of where we are from a balance sheet perspective within that 0% to 15% leverage range. So look, it's very difficult to be definitive about that. So we're talking more about the way we will think about that. To be clear, as you say, the intention is that we will use cash flow to manage that leverage. And if there is surplus cash flow, it's an important part of our philosophy is that we should be returning surplus cash to shareholders.

It's very much dependent on the size, the profile and the position that the company is in terms of its balance sheet. And those 3 factors will sort of impact how we think about the sort of -- both what instruments we use to sort of fund the new acquisition as well as sort of how it gets paid down over time or how we sort of repair the balance sheet to make sure that it gets back to a position that we are ready to act in the time of [indiscernible].

All right. And then just a second question from me. So just on Mining Area C, a couple of points here. So obviously, COVID is starting to spread in the community in WA. Are you comfortable about preparedness around that? And then secondly, just on timing of South Flank getting to full run rate. You've talked -- well, BHP is talking a 3-year ramp-up. But I know December quarter, they were annualizing at about 100 million tonnes a year. How should we be still thinking about timing of Mining Area C getting about 145 million tonne per annum run rate?

Yes. So I mean, obviously, COVID is a topical issue for us here in WA at the moment as we're looking to opening up the borders next week. And I think BHP has noted there's potentially some operational volatility to be expected in the next half as a result of COVID. But we -- clearly, BHP is very focused on managing that impact. We understand it's very well prepared. And so that's something that I'm sure they'll manage effectively. So we're not overly concerned about it.

And they have a track record of sort of managing the smaller outbreaks they've had so far very effectively across their [indiscernible] the assets as well.

And to be clear, to the extent it's reflected in additional costs associated with the business, just to sort of reiterate, we're not exposed to any increased costs as a result of that. Our exposure is obviously to production volumes and to price. In terms of ramp-up, as you say, I think very strong performance as I noted upfront over the last half. And BHP is still guiding or talking to expectations around reaching full run rate by mid-2024. Look, we don't have any reason to believe otherwise. We -- so we -- but we're certainly very pleased with the ramp-up performance to date and confident that they'll hit the targets they stated publicly.

Whether the [indiscernible] a straight line or [indiscernible] is yet to be determined.

Next question comes from the line of Glyn Lawcock from Barrenjoey.

Julian, I'm wondering if you could just help elaborate a little bit on the internal process when a royalty opportunity comes in. Just the time frame, you've got to look at it, how quick you have to act. Because I'm a bit surprised if you've been looking at -- I think you said 40 last financial year, and you said you need to be able to act quickly, yet you've only just put a debt facility in today, so I'm a bit surprised. But just trying to understand, I mean if you have to act quickly, I mean, is this suggesting that you can only limit yourself to sort of $350 million or not? I mean just trying to understand how the process works, like when they come in, how quick, et cetera. And then the consultancy spend, I mean, is that -- I know it's only small, but in the context of what you spend annually, it's large. Is that just a look at 1 royalty? Is that what you could expect to spend on BD when you do a deep dive into 1 opportunity? Or is that a number of opportunities? Just trying to understand the whole process.

Yes, sure. Thanks, Glyn. Yes, in terms of the processes, as I said, I mentioned last year, we looked at more than 40%, and we continue to look at them. And to be clear, many of those are opportunities we see, and we can do a pretty small amount of workout. As I'm sure with any business like ours, we have an upfront screening process where when we see opportunities, we screen them against the criteria that we use for assessing our investments, so those -- the parameters that we talk about pretty regularly around commodity and jurisdiction and size and the like. And many of them can be ruled out pretty quickly. So to be clear, that's a funnel that narrows pretty quickly. And then to the extent, it depends then very much whether we're looking at primary or secondary opportunities. But yes, there's a process where we go through and we do some initial work to having cleared the screening process, some additional work to assess the opportunity. And then if it's still prospective, clearly, we take an EBITDA. And I think in terms of the facility that we've announced today or the extension of the facility, it is about -- it's about flexibility, I think, probably is a better way of thinking about it rather than speed. Speed is important, I think, particularly in that primary market. But as much as anything, it's the liquidity that we're able to offer. It's being able to make firm commitments to counterparties in terms of our ability to fund. We are a small team. We want to be able to react nimbly. And I think having this funding capability in place is an important part of that. In terms of the spend, look, that's -- to be clear, that's not a single opportunity. That includes a number of opportunities that we've looked at. And it also involves some additional work we've done on sort of background work in terms of firming up views on particular sectors or sort of groupings of opportunities as opposed to single opportunities.

The only one -- Glyn, you talked about the size -- the sizing of the facility of $350 million. Is that as high as we can go? The answer is no. We can go higher. The $350 million was sort of sized around -- we were replacing a $40 million working cap facility, plus we wanted to sort of -- we had a target rate or a sweet spot we talk about of $100 million to $300 million. So the $350 million came at a logical place to put it at. We had excellent sort of responses from the back -- highly competitive process. And we could have gone materially larger than actually we have chosen to. And I think in building these relationships with these banks as well, that hopefully, in future, creates an opportunity to sort of -- to build on that as we go forward as well should we want to.

Okay. So can I just clarify a couple of things then? So how long would you have from something coming in the door to when you need to act? Is it -- are we talking you get days, weeks or months to review some of these opportunities? Like how quickly do you need to turn these things around?

Yes. Look, obviously, everyone is a little different and probably differences between primary and secondary opportunities. But when we're looking at competitive processes, typically, it's a question of weeks to couple of months, maybe 3 months, for a full process, but we'd certainly be looking to take a view internally on our appetite for the opportunity in a question of weeks.

I'd say indicative of it being generally 6 to 12 weeks. The smaller the asset, you potentially get a bit quicker, but the bigger the asset, the longer it goes.

Okay. And I mean I know it's a hard question to finish on because it depends what comes in the door, but $0.5 million on BD, is that -- should that be the normal go forward? Or is it just -- it's going to be too hard to quantify?

It's going to be lumpy, but it's -- I think it's probably not a bad sort of placeholder, potentially a little bit more as we go, depending on -- it depends on the site. As you talked about, not all processes are equal and you don't need the amount of -- some of them, we can manage more internally. Some of them, we need more external resources. And the more complex they are and the larger they are, the more diligence you'll do on certain sort of technical parameters. And that will sort of dictate some of those things. So it's hard to say. I think it's not a bad run rate, maybe a little bit more would be my guess.

And sorry, just getting the leverage down if you bought something. You obviously had 2 methodologies: one, you use the cash coming in the door; or one, equity. Like how do you think about the 2 of those to get the leverage back down if you did push it up towards the top end or through it?

Yes. Look, as I said, those are both available to us. I think it probably depends on the sort of where we are at the time. I think there's a -- if we've got strong cash flow generation, then that's certainly available to us. But equity is always there as well as an option. But look, it's very difficult to preempt that decision. I think that really depends on a lot of factors at the time.

The size of opportunity, profile of the opportunity and the situation of the existing balance sheet at the time will dictate where we go with that, Glyn.

[Operator Instructions] You've got follow-up questions from the line of Chen Jiang of Bank of America Merrill Lynch.

Sorry, just a follow-up on your growth. Is the cash flow from South Flank is 100% -- I mean, sorry, from MAC, is 100% secured for shareholder return? That's my first question. And secondly, by looking at commodity prices for base metals, battery metals mostly are record high. And the bulks, like iron ore [ sports ] at USD 139 per tonne, which is well above most people's long-term iron ore price forecast. A lot of second royalty deals would be fully valued. Do you have any time line or under pressure to grow given record high commodity prices for what you are targeting? And also, what's the plan if DRR cannot find any deals in the next 12 to 24 months?

Yes, perhaps to address the second question first. No, look, we're not -- we're obviously very active in looking at opportunities. But we're not under any pressure to invest. I think as we said I think pretty consistently, we will be patient, we will be disciplined. We will be very much focused on value accretion. And so we were certainly busy looking at those opportunities, but as we've said already today, I think we are conscious that they need to be value accretive and that there are going to be times where it's better to invest and we won't be chasing any assets.

I think your question around MAC cash flows is secured 100%. It's not like debts are not secured, but the capital management framework is designed to sort of -- to make sure that we are maximizing our returns to shareholders, which we intend on the MAC cash flows are sort of have the ability to -- sorry, people invested in Deterra where a lot of them were for the MAC cash flows than we are on trying to return them as best possible to shareholders through the cycle. And the new acquisitions will sort of be able to sort of self-fund themselves with sort of what the intent of that sort of framework was. I think the other question was around if we do no deal in the next sort of 12 to 24 months, Julian.

Yes. So look, as I said, we're actively looking at opportunities. We're not going to chase assets and invest simply for the sake of it. I'd rather be talking to you and investors about why we haven't done a lot of deals and talking to them about why we've done bad deals. So we'll stay patient and disciplined.

Yes. And part of giving lean cost structure is to make sure that the [ imports ] of that are retaining the head office or retaining a small some corporate sort of function is not too expensive. And we do try very hard to lean business model with sort of no excess fat in the system.

[Operator Instructions] There are no further question at this time. If you did not get the opportunity today to ask questions or if you have any follow-up questions, you may e-mail them through to our Investor Relations team at [email protected]. I would now like to hand the conference back to today's presenters. Please continue.

Great. Thank you very much, and thank you, everybody, for your attendance this morning, and we look forward to speaking with you again in the future. Thank you very much.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.