Stock Picks | Ecora Resources - Undervalued Or Just Underachieving?

23rd Apr '23 by Snowbum

12 comments 1208 reads

Hello members,

Been a while since i posted but I'm interested in what others think of Ecora Resources (LON:ECOR). I now hold, having watched it for a few years and having recently taken an initial position at 120.8p (mid march), before adding a bit more at 115p later in the week. Now around a 12% position in my ISA currently.

Previously Anglo Pacific, the company has almost now completed a pivot away from coal royalties into base/industrial, future facing metals, this article by SeekingAlpha probably covers all the salient points better than i could attempt to here so I'll just post the link for those interested instead. The article lays out well both the bull case and risk factors here which I'll try to summarise briefly below.

https://seekingalpha.com/artic...

Bull points: Commodities set to outperform over coming years due to inflationary environment, China also coming back economically. Debt reducing rapidly due to excellent FCF over recent years.

Risks: Recent FCF has been high, mainly from the last remaining coal royalty due to expire in 2026; late stage mining developments which they have royalty exposure to need to come online to fill the gap (mining majors involved though).

On the technical side, it appears to be at the base of a channel and in a consolidation zone at the moment, hope to see a move higher through trendline resistance soon with this week's TU potentially being a catalyst for that, however a breakdown can't be ruled out either.

https://www.tradingview.com/x/...

Summary of recent Annual report below.

March 29 - Ecora Resources PLC ECORE.L :

* FY PRETAX PROFIT ROSE 147 PERCENT TO 135.4 MILLION USD
* FY REVENUE ROSE 66 PERCENT TO 141.9 MILLION USD
* FINAL DIVIDEND PROPOSED OF 1.75P PER SHARE, BRINGING TOTAL
DIVIDEND FOR YEAR TO 7P PER SHARE

I make this around a 5.8% dividend yield at current price.

Hope to see some comments here from other holders or interested parties to start the discussion, or also in the Stocko Societas - discord thread I've started for the company too.

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illiswilgig

26th Apr '23

Reasonable trading update this morning from Ecora Resources (LON:ECOR) (I hold). It's an unusal holding for me as I don't generally invest or trade in natural resources. I bought in 2020 as I wanted exposure to commodities likely to be in greater demand as the global enconomy de-carbonises and I was too late for the obvious plays, lithium in particular. I liked the exposure to Cobalt, Vanadium, Uranium(small) and particularly Copper and Nickel which seemed, and still seems imho, undervalued in view of future demand.

Royalty portfolio income of $29.6m up 66% from the recent poor Q4 but also down 32% on the blow-out Q1-22. All due to the volatility of income generated by the Kestrel coking coal asset as it winds down over the next couple of years with mining moving away from the royalty lands owned by ECOR.

The 'core' royalty income which excludes the coking coal asset fell 16% to $6.7m and even further from last years Q1 of $10.1m.

Which underscores that ECOR is transition away from the volatile coal dominated porfolio and It will be a couple of years yet before recent acquisitions start generating significant income.

In the past ECOR has always been valued on its coal income and dividend payments. As yet the market hasn't figured out how to value the future growth in income from the recently acquired cobalt, nickel and copper royalties.

I see the core portfolio generating from $108-140m annually in 3-5 years time, with upside from mine expansion, lifetime extension and prices rises. Trouble is, I don't know when the market will begin agree with me - there are regular false dawns and it could be a couple of years before this plays out - or news of progress and/or rising prices could set that off at any time?

Just my opinion - you do need to do your own research on this one, as it could prove to be an uncomfortable couple of years?

cheers

Mark

Snowbum

Good analysis and feedback Mark, thanks for posting. I agree with your sentiment. Personally, I expect that ECOR will invest in further producing royalties in the interim period between the coking royalty expiring and the new mining projects coming on stream. This one isn’t going to shoot the lights out imo, but seems like it’s a solid way to gain some commodity exposure whilst picking up a reasonable dividend on the side (I hold too).

Alphaflight

Back in 2021, Anglo Pacific's (Ecora's) sold off off Narrabri to Australian listed Whitehaven - this was a grave mistake, their new management don't like coal.

Since then, coal has been a brilliant investment. Some of the Australian coal stocks are up 6 fold since this period (e.g. Terracom for example). Whitehaven is up over 350% since buying Narrabi from Anglo Pacific.

We've just seen BHP selling coal mins with P/Es of around 3 and then pay 8 times more for copper mines. More pandering to the woke brigade.

Here is a chart from 2021 comparing Ecora (Orange) to Whitehaven. Note that I sold half of my Anglo Pacific (Ecora) shares when I heard they were moving away from coal and I bought Whitehaven, Terracom and more Altius Minerals (they too are getting out of coal but have a superior portfolio to Ecora).

Nevertheless the Ecora dividend is good and the shares are very cheap for what they are.

Thanks Alphaflight - useful. FWIW I agree that the timing of APF sale of the Narribri royalty was terrible.

Arguably the acquisition of the royalty wasn't much better -Though thats always easy to say with the benefit of hindsight- as it never performed well - mainly due to technical problems at the mine iirc. The value of the Narribri royalty was probably never going to do as well as the Whitehaven shareprice?

Wasn't it the previous CEO who bought and disposed of the narribri royalty not the current CEO? But I always wondered whether it was a board decision rather than his. Especially as he has moved on to a Canadian coal outfit?

And to be fair to him, his timing on both the LIORC purchase and the share buyback were perfect. The jury remains out on the cobalt stream and I was not a big fan of it at the time. So-so at the moment but it could come good in the next couple of years depending upon prices - and I am more positive on cobalt than most - just as the underground mine takes off.

Altius is a good call. Imho - the biggest problem with APF was that they paid out way to much royalty in dividend in the good years - probably something the old school shareholders wanted - and struggled to buy any satisfactory replacements. Which is the cause of the current lean years.

The Piaui nickel mine is perhaps the thing that most attracted me to APF now ECOR. But thats just my view of the medium term squeeze on NIckel demand versus supply - the recent South32 acquisition of Copper looks good the same way. By my crude estimate it should be worth 2 or 3 times what ECOR paid for it in a couple of years time.

All by the by for me. I wanted exposure to Cobalt, Vanadium, Copper and Nickel - the situation at APF - now ECOR - allowed me to buy it at around 100p which I think was a good deal in 2020? Particularly plus dividends since then.

I'm not buying more atm - and might well sell a few if I get a decent opportunity, as I am fully invested and surrounded by opportunities which forces me to sell something in order to buy. But in the meantime, as I live on the proceeds from my pf the dividend may just help to keep me around for a while yet. I'll be watching carefully from here,

Hi illiswilgig,

My own feeling is that when Marc Bishop Lafleche became CEO circa < 12 months ago things deteriorated. He seemed to quickly jump on the 'electrification revolution' bandwagon and their website changed to reflect that - Now personally I'd have sooner seen him go against the (woke) grain and hover up some cheap coal assets.

Yes I agree with your thesis regarding nickel and vanadium.

I suspect we are in a commodities bull cycle so Ecora should capture a fair chunk of the market Beta I believe. Also being a royalty company we avoid various risks associated with owning mining companies and all of the overheads involved.

I'll continue to hold Ecora probably indefinitely purely for the exposure to these commodities and the (expected) dividend stream. Altius Minerals (TSE:ALS) is better company in this space but their dividend is of little consequence at ~1.5% p.a. right now. Holding both of these together works well for me though.

Martin VT

5th May '23

Whatever one’s view on the ‘energy transition’, if this continues to be a thing, and if it’s adopted in more than just the U.K., EU, North America, New Zealand and Australia (ok, admittedly two big ‘ifs’) then it is a fact that there will need to be incredibly large increases in the production of the type of metals/minerals that Ecora is now focusing on. Demand for copper and many others is likely to vastly outstrip supply for years/decades to come.

That said, the short sightedness in not seeing that coal remains, and will continue to remain a valuable commodity has been frustrating. However, I think it likely that we holders will get a significant rerating benefit when Ecora loses its major association with coal, during the next couple of years, and is seen to be politically correct and supportive of the transition.

8th May '23

Is a commodity Supercycle underway? Interesting read at link below...

https://cdn.pficdn.com/cms1/pg...

Wimbledonsprinter

10th May '23

I was at the Ecora AGM today. There was nothing earth shattering. There were two short presentation by Bishop Lafleche and Flynn.

It is clear that we are currently at a local low on the debt net front following the bumper 2022 and that financing the the quarterly S32 payments and the dividend will lead to net debt to drift up by year-end. That is before financing Piaui and potentially Incoa. Therefore I could see the comany having quite high net debt in early 2024 - if both projects are brought forward. The board definitely see Piaui very favourably (at current nickel prices).

With cobalt trading currently in the teens (below when the Voisey’s Bay stream was acquired) and production only due to ramp back up in 2024 onwards and Kestrel running down by 2026, I could see for a moment things could get quite tight . But exercising the option on Piaui (on current prices) seems such a no brainer.

There was a question / comment from a long- standing private shareholder pushing for share buy backs, with the shares trading 25% below NAV. But I got the impression that there was little appetite from the board for endangering financial flexibility.

Assuming West Musgrave gets built on time, Piaui gets the go ahead and VB underground ramps up as expected and copper, nickel and cobalt prices behave - the company could be in a very good position after 2026, when Kestrel revenues are expected to be zero.

Wimbledonsprinter: Thank you for assessment. Oh, did anybody ask about coal during the AGM?

Thank you for the write up, much appreciated.

Very fair overview I think. I am in agreement with you on Piaui,

No questions from the floor specifically about coal at the meeting. The outlook for Kestrel was covered in the management presentations - nothing new covered there.

Maybe worth noting that Robert Stan (who attended the meeting) is retiring today as an NED (after a decade on the board). He seemed the only board member with a really deep experience of coal.

Hi Wimbledonsprinter. Thank you for this, very interesting re Robert Stan I didn't know about this.

Ecora Resources - Undervalued or just Underachieving?

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Snowbum

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