Trident Royalties plc: Growth potential in a hedged mining play – with no fossil fuels in sight….

Adam Davidson, CEO of Trident Royalties Trident Royalties (LON:TRR) presented to private investors to explain this commodity mining company which is based on royalties and streams (more on this shortly). The company listed on the AIM in June 2020 and has a market cap of c.£72m. This week Simon Thompson of the Investors Chronicle also covered the stock in a very positive and detailed piece with a blue-sky valuation of 84p/share whereas it is trading at c.40p this week.

A recording of the Yellowstone Advisory webinar can be found here.

Trident covers all areas of mining and commodities excluding thermal coal so veers away from fossil fuels. Rather than mine themselves the revenues are based on royalties and streams. Coal is not a focus for Trident as many pools of capital have a strong ESG focus so this is a practical limitation as many institutions would be barred from buying in. Also, coal exposure can create a drag on NAV even if the projects are accretive short term.

Royalties are similar to those used in the music industry. There is an agreement between the holder and the issuer of the royalty, typically the operator of the asset, which entitles Trident to a portion of the revenue derived from the project. In a typical royalty agreement, the purchase price is paid upfront and there is no ongoing payment to the owner. This gives Trident exposure to the cashflow without concerns of potential dilution or operating costs compressing margins. This gives investors a hedge against general inflation with broad exposure across multiple companies in multiple jurisdictions.

Streams differ from royalties as typically there is an upfront payment for the delivery of a ‘stream’ of processed goods which are purchased at a substantial discount to the prevailing market prices.

Royalties are typically treated as a means of financing for mining companies. Indeed, today you would be hard pushed to find a mining company that doesn’t use royalties as a way of raising capital. Royalties sit in a sweet spot for the mining operators between equities and debt as they are only paid out when producing, yet deliver capital when needed in the early stages of an operation. For the royalty holder the bonus is that the exposure is limited to…

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