Deterra Royalties (DRR): Australia’s only iron ore royalty trust and the most boring miner on the ASX released their half-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.

Key Points:

  • Profits Up: Net profits increased +4% to $97 million as DRR benefitted from a 13.5 million tonne increase in production, offsetting a fall in the iron ore price.
  • Production Expansion: Production at Mining Area C continues to expand, with 58.7 MT done over the half, up from 45 MT done in the prior comparable period. DRR is benefiting from BHP peddling hard to increase production out of their royalty area to offset production declines from BHP’s declining Yandi system.
  • Dividend Up: Interim dividend 12 cents +3%
  • Cost increases, no problem! A key theme for the miners in reporting season has been higher labour costs and increasing input costs such as ammonium nitrate and diesel. As a royalty trust, DRR has less than ten staff members and receives a fixed percentage of revenue, so there are no CMFEU headaches from higher wage demands or issues with higher diesel prices for shareholders.
  • Guidance: no guidance is expected as DRR’s profits = volumes x iron ore price x 1.23%.  DRR has significant organic growth, with the South Flank project on schedule to reach 145MT per annum by the end of FY24

Deterra Royalties is held in several of the HNW portfolios and 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, rising wages, any capital expenditure or clean-up costs, which is an attractive proposition in our opinion. DRR’s assets are low cost.

DRR was down slightly -1.5% to $4.79 in a weak market today.