Ecora Royalties PLC (ECOR) Earnings Call Transcript & Summary

Hello, and welcome to the Ecora Royalties PLC Investor Presentation. Today, we are joined by the Ecora management team. I would now like to hand over to Marc.

Well, thank you very much for joining us for Ecora's H1 2026 presentation. It was a great start to the year, very much continuing to build upon the momentum established in 2025. Total portfolio contribution increased 75% in the period, benefiting from volume growth, particularly in our base metals royalty exposures as well as commodity prices. The 75% increase in portfolio contribution led directly to a sort of fivefold increase in adjusted earnings and in part, certainly demonstrating the scalability of the royalty model. The period also represents delivery in a number of key areas continuing on from our full year 2025 results. First, the critical minerals portfolio continues to demonstrate its underlying cash generation potential with that portfolio contribution from the base metals up just under 160% in H1 2026 compared to H1 2025. Second, we continue to see rapid deleveraging and reduction in debt. Debt as of the end -- or net debt as of the end of the first half was $75 million compared to $125 million last year following the acquisition of a producing copper stream. And we're positioned with further -- we're positioned with further debt reduction expected in the second half of the year, potentially benefiting from commodity prices in addition to the deleveraging that's expected should commodity prices remain at or exceed current levels. Third, in the period, it was clearly demonstrated that compared to historically, when Ecora's revenues was derived primarily from the Kestrel royalty, which is, by definition, very short dated, a large portion of the revenues generated in the first half of this year were underpinned by royalties or streams with mine lives that were on multiple decades with extension -- life of mine extension potential thereafter. I think the third point to note -- the fourth point to note, excuse me, is the strong increase in free cash flow conversion that occurred. And you can see it with a 75% increase in portfolio contribution translating to a 5x increase in adjusted earnings, and that's something my colleague, Kevin, will discuss in more detail. And last, but certainly not least, in the period, it's very clear that this portfolio is now positioned for a number of key derisking events in relation to the next 5 years and the next 5 years of organic growth that's embedded in this portfolio that has been bought and paid for, some potentially as soon as the second half of this year. So with that, I'll hand it over to Kevin to take you through the financials.

Thanks, Marc, and thanks, everyone, again for joining us. Our financial highlights. As Marc mentioned, we saw a 75% increase in portfolio contribution in the period, very much underpinned by our base metals portfolio, which grew by 160% year-on-year. And this was driven by quite strong operational performance and also some very positive pricing tailwinds as well. So very pleased with the increase in our contribution and how the portfolio performed in the period. As Marc mentioned as well, the real key takeaway here is the earnings conversion in the first half of this year. We've been saying this for some time now, but as Kestrel winds off our income base, -- the efficiency of the rest of our portfolio really is expected to come through. And this is the first time we've seen this in a reporting period, whereby a 75% increase in portfolio contribution resulted in a 5x increase in adjusted earnings and really is a snapshot for what's to come for Ecora in the future when Kestrel is no longer part of our complexion. I'll touch on this a little bit more in the next slide. Free cash flow picked up as well in the period, not perfectly correlated to the increase in the earnings in the period. There's still some timing differences on working capital as we go through the Kestrel transition. But we would expect in life outside Kestrel for earnings and free cash flow to very closely mirror each other. Turning to the next slide, which gives a summary of our portfolio contribution. I won't go through all of these. I'll pick the top 3 in particular, which really does highlight the stellar performance of our base metals portfolio in the period. Very much driven by operational performance at Voisey’s Bay. We saw a near doubling of deliveries under our stream entitlement, and this was in a period of much higher pricing as well. So both combined to result in a very significant uplift for us in the period. Our guidance here at Voisey’s Bay remains the same as the beginning of the year. So we expect the second half to continue from a very strong operational perspective. And some key news in relation to further potential from Voisey’s Bay came out very recently with Vale Base Metals indicating the potential for a 35% increase in mill capacity, which would directly benefit our stream entitlement here as well. So very pleased with the first half from Voisey's and good indications of much more to come at this key asset. Looking next to our copper portfolio, which we were very pleased to see the portfolio contribution coming through here. Mantos Blancos again produced another strong performance in the first half. We saw contribution increase to close to $5 million, which would be close to a 20% cash yield run rate on this asset, which we're very pleased with. There was slightly lower volumes in the period. This was expected, lower grade mining operations. But the flip side to this, of course, has been a very strong copper price, where we've seen a 37% increase in realized copper pricing in the first half of 2026 compared to 2025. The exciting news with Mantos, similar to Voisey's, we are expecting a PFS -- or sorry, a Phase 2 publication from Capstone Copper in the second half of the year, which would pave the way for further volume uplift at this asset, which would be -- drop straight to the bottom line for Ecora without any capital commitments. Mimbula continues its ramp-up. This is not exactly apples for apples. H1 last year represented 3 months of income, whereas H1 in 2026 is the full 6 months. So pleased to see this coming through as expected with the ramp-up profile here. More to come from this asset in the second half. And just to pick 1 or 2 others briefly, Four Mile -- just to remind everyone, we do have income exposure to uranium from our Four Mile asset. Again, not quite apples with apples. Q1 last year saw the operator stockpiling, whereas the first 6 months of this year saw a normal kind of sales profile here at the asset. So very strong uranium price tailwinds at the moment, bodes well for the second half of the year. It's always worth reminding ourselves that we do have some gold exposure in the portfolio through EVBC, which saw very impressive year-on-year growth given the record levels of gold pricing seen in the first half of 2026. And not to be forgotten is Kestrel, which whilst it only contributed 4% of total portfolio contribution in the first half, we expect most of the volumes to come through in the third quarter and our guidance here for total volumes remains unchanged. So overall, very, very pleased with the portfolio contribution in the first half, and we expect plenty more to come in the second. Our adjusted earnings, and this is the slide I just want to touch on in a little bit of detail where we saw a 75% increase in contribution results in a 5x increase in adjusted earnings. And this is very much driven at the tax level. In H1 last year, you would have seen adjusted earnings before tax of around $5 million with $1.9 million of a tax charge associated with that. That's very much reflective of the high tax rate implied by the Kestrel asset, which is a function of it having no cost base in an Australian jurisdiction. In the first half of this year, we had very little contribution from Kestrel. And as a result, we saw about $20.5 million of adjusted earnings before tax and only $900,000 of tax accrued on that income. So that really is a real takeaway from this slide that I just want to point out. It's very much a vision for the future of what a Ecora's portfolio can do when Kestrel finally departs our private royalty area. The other point I just want to pick out on this slide is that our cost base was virtually identical half H1 2026 compared to half H1 2025. And with a 75% increase in contribution, this really does daylight the scalability of the royalty model. My next slide is a summary of our balance sheet. I think the key point to note here is that 87% of our royalty assets are carried on our balance sheet at the lower of amortized cost or impaired value. So that -- what that effectively means is that any inherent value uplift in our asset base since acquisition, and I've just mentioned Voisey's Bay potential for mill capacity throughput increase and a Phase 2 expansion at Mantos Blancos. All of those updates imply valuation uplifts in our asset base, but these are not reflected on our balance sheet through IFRS. So the total royalty asset valuation should not be understood to be the commercial value of our assets. There's plenty more value on our balance sheet -- in our asset base, which isn't reflected on the balance sheet. And as always, it's worth noting as well that of that -- of our asset base now, 85% of that is in base metals, which is very pleasing to see as Kestrel unwinds. The next slide is our debt reduction and capital allocation slide. As Marc mentioned earlier, we've seen very meaningful deleveraging since we acquired Mimbula about 15 months ago now. Net debt peaked at that point of about $125 million. This came down to about $85 million at the start of the year and at the half year, it was down to about $75 million. The table on the bottom right shows based on broker consensus pricing, where our debt levels could end the year, which would be close to $50 million and $25 million by the end of next year. And at these levels, we're very, very comfortable. That implied -- the implied operating leverage at the end of Q2 was 1.35x. By the end of the year, if our debt reduces to $50 million, that will be under 1x. And those are very comfortable levels for us to operate at. In terms of capital allocation, we continue to prioritize growth and deleveraging in the period. The natural deleveraging creates plenty of financing flexibility for us to continue our growth journeys. And we continue to see very good opportunities. So to have financing capability is very important for us. We have a stated policy to pay out between 25% to 35% of our free cash flow in dividends. We continued this in the first half, paying 25% of free cash flow. And the free cash flow growth resulted in a tripling of the dividend from $0.6 in H1 2025 to $1.9 in 2026. And this very much fits with our philosophy of growing the dividend as a function of growing our income. And I think with that, I'll pass back to Marc.

Okay. Great. Well, thanks, Kevin. So turning now to Voisey's Bay. I think in short, it's been a fantastic start to the year. And as you can see on the left-hand side of the slide, production levels were right around nameplate capacity. So it's great to see this asset now hitting its stride. And in that context, as Kevin mentioned, the Vale Base Metals team thinking about what comes beyond the existing strong production. And that comes in 2 forms. The first mentioned by Kevin relates to the potential to expand the mill throughput from 2.8 million tonnes to 3.8 million tonnes. Vale has stated that a study is ongoing, is targeting a final investment decision with regards to that project by 2028 and potentially with increased production rates coming through in 2030. The second area of expansion relates to the potential to expand the life of the ore body as a result of exploration drilling. And you can see on these following 2 slides, a snapshot as publicly available at the time in 2018 to today, and that's really tangibly providing evidence supporting our view that there is very strong potential for the life of mine to be extended at Voisey's Bay in time, potentially double or more. Very similarly, at Mantos Blancos, the operation continues to deliver strong operational performance. In that context, the Capstone Copper team is considering what's next. The Capstone team submitted an environmental impact assessment permit earlier this year in relation to a potential Phase 2 expansion and more details in relation to that Phase 2 expansion are expected in the latter half of this year by the publication of a study. And similarly, the Capstone Copper team is also considering life of mine extension via the potential to extend the mineral resource and reserve via exploration in the pit or in areas adjacent to the existing open pit operation. Also in the portfolio, Mimbula, Kevin touched on this. So I'll be brief on -- I think the key point to mention is that the SX circuit began commissioning in June, which is a major step forward for the project. And from here, within the wider Phase 2 expansion, 2 of the key areas include the construction of an ETL circuit as well as an expanded electrowinning capacity. That would be addition of electrowinning cells at the existing electrowinning facility. At Santo Domingo, Capstone Copper continues to progress this project potentially towards an FID decision or final investment decision to sanction the construction of the project. That is targeted by the Capstone Copper team for later this year, which worth a reminder, this is an important royalty potentially to Ecora at spot prices on average over the first 6 to 8 years, this royalty could generate upwards of $35 million per annum on average over that period. So certainly one to watch. In our specialty metals and uranium portfolio, Maracas Menchen, saw a strong ramp-up in sales period-on-period, which is positive. And I think from a more strategic perspective, the offtake agreement or the sales agreement secured from the U.S. Defense Logistics Agency certainly highlights the strategic nature of the Maracas Menchen operation, particularly given the majority of the world's vanadium supply is produced in China and Russia. The rare earth -- our rare earths royalty Phalaborwa project owned by Rainbow Rare Earths continues to -- the Rainbow team continues to progress the definitive feasibility study towards completion. And Rainbow Rare Earths is well capitalized to do so, having raised approximately $15 million earlier this year. And last, the Patterson Corridor East royalty. This is an earlier stage royalty over a mineralization that's been discovered by NexGen in close proximity to NexGen's Arrow deposit. NexGen continues to drill the deposit and continues to deliver what are geologically exceptional results. We are very excited to see the continuation of the drill program and subsequent results and in time, look forward to NexGen releasing a maiden resource statement. On this slide is a bit busy, but we've sought to separate the key derisking events in the near term and the medium term. And secondly, to group them by order of stage of development within the Ecora portfolio. So that would include the first layer being producing assets, next being the potential expansion of producing mines or the restart of operations. Third being greenfield operations. And last, projects which are not yet expected to -- as of this time anyway, is expected to generate royalty income for Ecora in the short term, for example, Patterson Corridor East, but certainly have the potential as they are derisked to drive significant NAV expansion at Ecora as the royalty increases in value. I think the last point actually to make on this slide is if you sat here looking at this exact same slide a few years ago, I think we'd observe that a number of these points were clearly still a few more years away. And it's a very exciting time for that next wave of organic growth, specifically given many of these catalysts that were a few years away are now in the short term, as I mentioned, potentially as early as the second half of this year. And very important to, we think, daylighting and providing more confidence on the potential to take cash flow from our portfolio contribution rather from our critical minerals royalty portfolio and research analyst consensus for this year of, call it, around $60 million to $65 million to by the end of the decade, potentially in excess of well over $100 million. This is a slide that you have seen before in terms of mapping our royalty portfolio, although we presented it somewhat differently. We presented it following that layering to better identify the cash generation potential that exists within our royalty portfolio, but also layered in terms of risk profile. So starting with the producing royalty portfolio, that's expected to generate approximately $70 million in 2026 based on research analyst forecast. And that next leg of growth relates to, as we discussed earlier, the potential brownfield expansions of the Voisey's Bay mine as well as the Mantos Blancos copper operation. And what's particularly interesting about these 2 is that as of today, while they appear highly likely as a result of what appear to be attractive economics, they are not yet sufficiently detailed such that these assets are forecast into Ecora cash flow forecast or net asset value calculations by a research analyst covering Ecora. So that's certainly something to watch given its potential medium-term cash flow impact, but also NAV accretion potential should that occur in the future. The next layer relates to projects that are not yet in production, greenfield projects or operations that are expected to restart from having previously produced. And that really in that category relates to the Nifty royalty. Longer term, the portfolio has significant optionality and in particular, as I mentioned, the Patterson Corridor East royalty as well as the Canariaco copper deposit, which is now owned by Fortescue. We sought to, as we come to the end of the presentation, pause and sort of contrast where Ecora was historically and contrast that in a way to the next chapter, so to speak, and where Ecora is now and towards the future. When you think about where and how Ecora historically derived its cash flow, that was very much the case, very much derived from a single commodity, dependent on one operator primarily and one asset. The cash flows were ample, but constrained in terms of life and were increasingly depleted every single year as a function of mining operations expected to be moving out of our Kestrel royalty area. And last, benefited from very limited optionality or mine expansion potential. And that is a major contrast to the complexion of the portfolio today. First of all, the portfolio is much more diversified across commodities, similarly, much more diversified by counterparty. The portfolio offers a strong organic growth profile that's been fully funded and purchased. From a cash flow perspective, our key royalties benefit from multi-decade mine lives and in addition, as we mentioned earlier, from further potential life of mine extension. So any way you cut it, I think what you're really ultimately contrasting is a business that historically had relatively low quality of earnings and today has significantly improving quality of earnings. And as a result, you overlay that with the organic growth profile of this business that exists, the strong fundamental outlook for the commodity basket to which Ecora has exposure, our position to continue to grow the portfolio inorganically via acquisitions. Generally speaking, we continue to believe the portfolio offers a very attractive entry point. So to summarize, with reference to 2026 anyways, we're certainly on track to deliver volume growth year-on-year from 2025 to 2026, in particular, from our key base metals royalties. The portfolio is positioned to potentially benefit from a number of catalysts and derisking events in our near-term and medium-term portfolio. We're continuing to expect debt reduction, providing the balance sheet flexibility to acquire new royalties should attractive opportunities meeting our investment criteria present themselves. And furthermore, our debt reduction has potentially accelerated in the second half of this year as a result of commodity price tailwinds. And last, it's important to note -- it's a relevant point in the context of persistent inflationary pressures. As Kevin mentioned, Ecora demonstrated flat year-on-year operating costs. And given as a royalty model, we don't have direct exposure to operating costs of the operations producing these minerals. The royalty model inherently is quite defensive in any inflationary environment or periods of extended inflationary pressures. So with that, we'll pause here, and we'd be happy to take any questions you may have.

Thank you to the management team for the presentation. [Operator Instructions] Would like to start with the first question. Hats off to the entire team for a wonderful H1 report. Everything management said it was going to do has started to prove out. My question is, how are you planning to attack the valuation gap between Ecora and its non-precious metal royalty peers? Marc?

Well, thank you for the kind words. That's certainly appreciated and is a function of the very hard work the team at Ecora has done for the better part of 12, 14 years in anticipation of the roll-off of Kestrel -- to diversify the portfolio from a cash generation perspective, but also to add growth. So of course, it's a pleasure to see it coming together and so even more of a pleasure to see the portfolio demonstrate its cash generation potential that we as a management team have always known existed. As we look to the future and as we've seen our quality of earnings increase, in parallel, we've observed an expansion in Ecora's relative valuation multiples. We've also seen a significant change in the Ecora shareholder base very much towards growth. And we anticipate in the future as the portfolio continues to deliver, combined with the potential to further diversify the business by acquisitions and of course, ensuring that we continue to tell the story effectively, so as many people as possible know about Ecora, given Ecora within the wider royalty sector is quite a differentiated royalty company. There are very few companies, if any, royalty companies of focus with 80% of their net asset value in base metals, 50% in copper of our size and scale, which is quite attractive, of course, in today's world and particularly with copper prices, the outlook for copper being very attractive as demonstrated by near-record copper prices today.

Thank you. We'll go to our next question here. Would you rather acquire a smaller number of very high-quality royalties at attractive prices or deploy more capital into a larger number of opportunities to diversify the portfolio?

Our strategy at Ecora is to focus on quality over quantity. As a consequence, we have been happy to be patient until such time, we believe attractive opportunities that we believe are attractive have presented themselves in a very conceptual and theoretical world, all else being equal, one would, I think, naturally prefer 4 transactions that are of equal quality as opposed to transaction purely as a function of diversification and reduced concentration risk. But rarely do opportunities present themselves as clearly as this. But at least at a minimum, I hope you understand how we approach the importance of ensuring the consistent application of discipline in our investment criteria balanced against what we believe to be an incredible opportunity for Ecora as a platform as it continues to grow.

Thank you. Free cash flow was $12.1 million in H1, but adjusted earnings were $19.5 million. How would investors think about the substantial coverage of earnings into free cash flow?

Yes, I'll take that one. Yes, as I said in the presentation, we didn't see perfect correlation between earnings and cash flow in the first half of the year. This is very much a function of the timing of certain payments that are due, whether that is tax or certain costs that we incur through our normal cycle. So there is a timing difference impact to our tax profile. A lot of the tax that we paid on Kestrel's earnings last year were paid in the first half of this year. So it will be a period of time until we see that correlation working much better, but that very much is the direction of travel that we expect to see in the coming years. If we look at our portfolio generally, Voisey's Bay, we pay no tax on that. We acquired very substantial tax losses in that structure. And as income rolls on from other assets and ramps up from existing assets, we'll see reactivation of certain tax losses in our wider structure, which the 5% effective tax rate on our pretax adjusted earnings is kind of a vision of what's to come from this portfolio, albeit it hasn't fully caught up in free cash flow conversion in the first half of the year.

On to the next question. Can you remind us of your capital allocation framework?

Yes. So I'll take that one as well. So our capital allocation framework, effectively, we've got kind of 4 pillars to that. The business is very much in growth mode. We continue to see very good opportunities to transact. Marc has mentioned, we're very disciplined in how we do that. But growth is very important to us in terms of continuing to diversify our portfolio, both in terms of earnings diversification and NAV diversification. And that very much is our focus. The second pillar of our capital allocation is designed to provide balance sheet strength. This is, for us, very important because we think a lot of -- one of the main reasons the royalty business model is so valued is because it gives a derisked exposure to the natural resources sector or the mining sector. We feel it's very important not to compromise that through providing that exposure through a levered vehicle. And I think for us, it's very important that we have a strong balance sheet, which enables us to transact and continue growing. The third pillar is distributions to shareholders via dividends. This is based on -- and it kind of has resulted in a function of our growth ambitions, whereby we'll pay between 25% to 35% of free cash flow in dividends to our shareholders. We're very conscious that for some shareholders, it's important that there is a cash element of dividend distribution in order to hold, notwithstanding that those shareholders are also very much supportive of growth. And elsewhere, we look at other aspects to capital allocation, whether that's buybacks we've done in the past. We'll determine those based on where we are at any point in what has historically been a very cyclical industry. So that capital allocation framework was crafted a number of years ago and is still the principles that we abide by today.

On to the next question, which parts of the business are growing fastest at the moment? And where do you see the biggest opportunity?

From an organic growth profile, our copper and base metals exposure has demonstrated the strongest growth, whether that be from '24, '25, '26. I would expect that to continue towards the end of this decade and beyond. 50% of our net asset value is copper exposure. And in time, as these royalties derisk and start generating cash flow, copper is expected to generate just over 50% of Ecora's revenue. So much more to come in base metals and copper in time. In terms of how we look at inorganic royalty and stream acquisitions, we, of course, for anyone who has been following Ecora for some time, this won't come as a surprise. From a commodity perspective, our strategy is to focus on critical minerals with a particular lean into base metals and copper.

Voisey's Bay and Mantos Blancos are showing strong growth, while Santo Domingo and other projects offer longer-term upside. How should investors think about the balance between near-term cash generation and the longer-dated development pipeline?

Well, we've sought to structure Ecora, and you'll see it in some of the slides is offering a layered growth profile. So first, under Ecora underpinned by producing royalties; second, by the medium-term royalties that are expected to deliver growth by function of brownfield production expansions. The third bucket, which is referenced in the question relates to Santo Domingo, but that's the third layer within our growth profile, which would relate to greenfield projects. And the longest relates to longer-term royalties that are not expected to generate income, but certainly the potential to drive significant net asset value per share accretion. And so when you think about the Ecora growth profile, it's very much a mix between free cash flow growth, but also capital gains potential or capital growth potential or NAV accretion potential as initially as assets are derisked towards first production and subsequently as they begin generating royalty income.

Do you see copper remaining the biggest driver of Ecora's growth over the next 5 years?

Based on the portfolio complexion today, absolutely. And that's obviously a deliberate effort to set copper at the core of the Ecora portfolio. We sought to position this business to copper for the better part of a decade. So it's great to see the copper market evolve as we -- as was expected and forecast when we sought to acquire and secure attractive entry points into copper over that period of time. And we really like copper in part because copper is as a conductor of electricity, incredibly diversified across the electrification thematic.