Deterra Royalties (DRR): Australia’s only iron ore royalty trust and the most boring miner on the ASX released their full year 2023. For DRR, there is minimal scope for surprises on results day as revenue and production data were pre-released, and the company is a royalty trust that passes through payments from BHP with a 95% profit margin, the highest on the ASX! The HNW Portfolios currently hold a 3% weight in DRR.
Key Points:
- Record Mining Sales: Mining Area C (MAC) sales increased by 23% up to $118.4 million, driven by a 28% increase in the iron ore price to $170 per dry metric tonne
- Benefits of a Royalty Trust: Deterra provides investment into iron ore without having to take on the underlying operating risks allowing for high margins that are protected from inflation. (See below)
- No Debt: Due to Deterra being simply a royalty trust, it has no borrowings on its balance sheet, meaning no repayments with a net cash position of $25 million.
- Dividends: Deterra continued to distribute all of its $79 million in earnings to shareholders, reflecting a full year fully frank $0.1489 dividend.
- Outlook: Deterra is looking to potentially diversify away from just the Mining Area C royalty into other royalty streams of higher value non-precious metals but remains cautious as access to traditional funding sources has become more challenging in this higher interest rate environment.
Portfolio Strategy: DRR is a royalty trust that owns an income stream based on 1.23% of the revenue BHP receives from iron ore mined in the Mining Area C iron ore tenements. Based on current production, the mine life of these assets currently stands at 30 years. As a royalty trust, DRR is not responsible for operating the mine, raising wages, any capital expenditure or clean-up costs, which is an attractive proposition in our opinion. DRR’s assets are low cost. DRR trades on a 6.5% fully franked yield
DRR finished up +1.8% to $5.15.
