Deterra Royalties (DRR) John Tumazos Very Independent Research 2024 Virtual Conference summary

Business overview and strategy

• Largest ASX-listed royalty company, spun out from Iluka Resources, with a market cap over AUD 2 billion and a focus on non-precious metals royalties.

• Core asset is a royalty on BHP's Mining Area C iron ore operation, generating the majority of revenue and profits.

• High EBITDA margins (mid-90s%) and strong dividend history, with AUD 560 million paid out since listing.

• Strategy centers on growth through acquisition, focusing on bulk, base, and battery metals, and maintaining a strong balance sheet.

• Preference for investments in developed mining jurisdictions and assets in or near production, but open to earlier-stage opportunities for value.

Portfolio and recent acquisitions

• Initial portfolio included six royalties, mainly in iron ore and mineral sands, with three producing cash flow.

• Recent Trident acquisition added 22 royalty and royalty-like assets, expanding exposure to lithium, gold, silver, and copper, and diversifying by geography (now in 11 countries).

• Trident's gold offtake contracts generated AUD 7 million in margin last year; these are considered non-core but provide cash flow.

• Thacker Pass lithium project is a flagship asset, with a 40+ year mine life, strong funding, and permits in place; royalty interest expected to be 1.05% of gross revenue after buyback.

• Mining Area C remains the dominant revenue source, accounting for 80-90% of income, but portfolio diversification is increasing.

Financials and capital management

• Generated AUD 155 million net profit after tax in the most recent year, with over AUD 850 million in revenue since listing.

• Maintains AUD 500 million in credit facilities, with over AUD 300 million recently drawn for acquisitions.

• Target net debt range is 0-15% of enterprise value; focus on maintaining liquidity and flexibility for countercyclical investment.

• Dividend payout policy shifted from 100% of net profit to a minimum of 50%, balancing growth investment and shareholder returns.

• No formal share buyback program, but capital allocation is regularly reviewed against alternatives, with dividends preferred due to franking credits.