Company Interview / Deterra to diversify in FY25

Julian Andrews, CEO of Deterra Royalties, asserts that his company mainted consistent robust revenues from the mining domain, specifically mining area C located in Pilbara. He affirms that despite a 5% increment in profits reaching around $155 million due to a 13% spike in iron ore prices, a minor decrease in sales volumes by 2% was noticed. With a fully franked final dividend of 14.4 cents per share, the total annual payout was declared at 29.3 cents per share.

Julian states Deterra's financial interest rather than an operational stance in the mining field, drawing attention to the fluctuating iron ore prices due to concerns surrounding the Chinese economy and demand. The company enjoys a 1.232% revenue on sales emanating from the mining area C operation, which Julian sees as beneficial, given they aren't exposed to margins and cost inflation like many other companies may be.

Discussing portfolio diversification strategies, Julian unveils Deterra's plan to acquire Trident royalties as an attempt to introduce additional sources of earnings growth, broaden optionality around development, and diversify exposure across an array of commodities, operators, and jurisdictions. Notwithstanding a dip in share prices due to market responses to this development and a division in dividends, Julian remains undeterred, specifying the company's discipline with capital and intentions of returning profits to shareholders when it's operationally unnecessary. He emphasises the company's readiness to adjust their strategies lambasting the commodity cycle's opportune moment.

Full unedited transcript below:

0:11

Let's get some more results now. Mining royalties coming to Terra has reported a net profit after tax of close to $155 million, revenue increasing by 5% to $240.5 million. It says a 13% increase in iron ore pricing was offset by 2% decrease in sales volumes, is declared a fully franked final dividend of 14.4 cents a share, and a full year payout of 29.3 cents a share.

0:38

Let's get some detail now of those results. And the share is up. Share price is up today. Didier, as chief executive and managing director Julie Andrews joins us now. Julian, welcome to thanks so much for joining us. Yes. Hello, Andrew. How would you describe the result?

0:58

Well, look, it's another year. I think, of strong performance for us. You you would have seen that we've been consistently reporting strong Revenue on the back of the mining area. C royalty that we hold that ultimately is driven by production and pricing out of, um, out of the the mining area. See operation up in the Pilbara. It's been a, you know, you sort of looking behind the numbers a little bit, as you said, as you pointed out in your introduction. Our overall revenues are up about 5%. And that's really on the back of stronger realised revenue per tonne, um, on slightly, slightly lower volumes for the year coming out of mining area. See,

1:39

have you given guidance. Because obviously the concern is where that that iron ore price is tracking, given it has fallen substantially with forecasts it's going to continue falling.

1:50

Yeah. Look no we don't give guidance. At the end of the day we we hold a financial interest in um, in the operation rather than an operational one. So we are in some sense price takers when it comes to iron ore. And as you say, we've seen iron ore clearly has come off over the course of the past several months. Um, really on the back of concerns about, um, you know, uh, the Chinese economy and we're still demand is going in China. That being said, you know, in the past we've seen support for iron ore at about these, these kind of levels. And I guess we'll see over the coming, coming weeks and months how that plays out this time around. Uh, do you see, is perhaps less related to the to the iron ore price than the the major miners there?

2:35

Yeah. What we what we provide is, is exposure to, to production volumes and pricing, but with, you know, qualitatively different risk profile, um, because we don't have that operational interest, our revenues really are driven by the top line. Ultimately we have a over mining area. See, we have a 1.232% revenue of on sales coming out of that operation. So we don't have the same exposure to margins. We don't have the same leverage to those margins. And particularly we don't have the same type of exposure to, um, cost inflation, whether that's operational cost or whether that's that's capital cost. So you're clearly seeking to diversify supply your portfolio, because obviously you're looking to pick up Trident royalties that has been approved by the company. Um, can you talk us through the latest development there? And and what's the strategy? Why have you targeted that?

3:33

Yeah, sure. So we've been, you know, we're, um, have been pretty consistent in our strategy. We're looking to diversify our portfolio. You know, at the moment we are very heavily weighted towards iron ore and heavily weighted towards the one operation and mining area. See, you know, that being said, it is you know, it's a world class asset. So it's a it's a nice exposure to have. But you know our strategy is about looking to diversify the portfolio, bring in additional sources of earnings growth over time, bringing in some optionality around development and just diversifying the exposure across different commodities, different operators and different jurisdictions. Can you. So

4:13

sorry. Go on. Yeah, I was going to say you mentioned that the the offer we made for Trident earlier this year. Um, that that is exactly about executing on that strategy. You know, Trident has a portfolio of 21 royalties across a range of different commodities, different development cycles, different, um, jurisdictions. And we saw a we saw an opportunity to, to act, um, and bring those additional exposures into our business and to do it at what we felt was a really opportune time in the commodity cycle. You share price took a bit of a tumble. So the market didn't particularly, uh, receive that, um, that announcement. Well, but I guess that was also combined with the fact that you've you've halved the dividend. Why is that?

4:59

So look, you know, we we had been we've been pretty consistent in our, in our approach that we would be disciplined with our capital. And, and particularly when you have a strong cash flow producing asset like, like the mining area C royalty, you know, we are generating a lot of cash flow each, each year. Um, and we felt that it was an important part of our capital management framework to be disciplined with that and essentially to return that to our shareholders when, when we didn't need it for other purposes. You know, that being said, you know, we've said that as we move into periods of growth where we see opportunities to invest, to grow the business. Clearly, we need we need the funds to be able to make those investments. There are a number of different ways that we can we can look to support those investments. And, you know, the the the payout ratio and the dividend is an obvious one of those. And that's the one that we're we're focused on at the moment in terms of funding the Trident acquisition. You know, that being said, what we have said is, is not that

5:59

the the dividend will be halved, but that we will be, um, targeting a payout ratio with a minimum of 50%. Um, and as always, when, when the decision is made on exactly where that payout will, will land, it will depend very much on on where our balance sheet is at the time and where where we see the, the, the pipeline of further investment opportunities. So it's about it's about recycling our liquidity. It's about ensuring that we have access to the the capital that we need to continue to grow our business and act on those growth opportunities as and when we see them.