Ecora Resources PLC
Volatility in volumes sees lower Q3 before recovery
Our view: Q3 23 trading update was weaker than expected driven by volatility in volumes from Kestrel and Voisey's Bay. With guidance for the full year unchanged we expect volumes to recover leaving Q4 23 stronger than previously expected. FY23-25e portfolio income forecasts falls slightly on a reduced royalty rate for EVBC. We rate ECOR Outperform with a price target of 160p.
Key points:
Volatility in Kestrel and Voisey's Bay volumes drives lower Q3 23 miss but full year guidance unchanged
Q3 23 portfolio income of $5.8m was below RBCe ($8.8m) and cons ($8.5m). The miss to our numbers is largely attributed to lower than expected income from Kestrel and Voisey's Bay. At Kestrel, only 60kt of coal were sold from ECOR's royalty area vs RBCe at 150kt. Management expects volumes within its land to increase in Q4 23 leaving guidance for FY23 unchanged at 1,700-1,800kt. Maintenance at the Long Harbour refinery restricted cobalt delivers from Voisey's Bay to one (14t) vs RBCe at 2 (28t) with the reminder expected to be received in Q4 23 leaving FY23 guidance also unchanged at 10-11 deliveries (140-154t of cobalt). The rest of the portfolio was overall weaker than expected driven by lower than expected operating results.
Ecora has reached an agreement with Orovalle the operator of the EVBC royalty (3% FY23e revenue, <1% NAV) which was experiencing financial difficulties. The group has agreed to pay the outstanding royalty amounts for Q3 22 and Q4 22 ($1.5m) and Ecora has agreed to reduce the royalty rate from an RBCe of 3% to 0.8% (based on prevailing gold prices). No financials were reported except for net debt of $68m, broadly in line with RBCe of $70m.
Key growth milestones upcoming
Important milestones for the group's growth projects are expected within the next twelve months including progress on the construction of West Mustgrave, a feasibility study and financing for Piaui (H1 24) and Santo Domingo's Feasibility Study (Q4 23).
Re-iterate Outperform and Price Target of 160p
Including today's results reduces our FY23-25e Avg portfolio income by -3% driven by lower revenue from EVBC. Ecora's transition away from coal into future-facing commodities will accelerate in the next twelve months but will come with increased revenue volatility. We forecast the share of coal in the portfolio will halve from c.60% in 2023 to 30% in 2024 as mining at Kestrel moves away from the royalty area.Ecora is trading at 0.54x P/NAV and 8.1x F24E EV/EBITDA a material discount to precious metal and closest peer Altius (ALS CN, not covered). We re-iterate out Outperform rating and price target of 160p.