Voisey's Bay, Mimbula And Mantos Blancos Will Empower Base Metals

Key Takeaways

• Expected volume growth from key assets will substantially boost future revenue, supported by low operating costs and production expansions.
  
• Shifting revenue from Kestrel to lower-tax jurisdictions in the base metals portfolio is anticipated to increase net margins due to a lower effective tax rate.
  
• Oversupply in cobalt, declining Kestrel royalties, and reliance on Mimbula challenge Ecora's growth, while debt and geopolitical factors strain margins and revenue.

Catalysts

Operates as a natural resource royalty and streaming company in Australia, North and South America, Europe, and internationally.

• Ecora Resources anticipates significant volume growth in 2025, particularly from key assets such as Voisey's Bay, Mimbula, and Mantos Blancos. This volume growth is expected to substantially boost revenue.
  
• The Mimbula copper stream and Mantos Blancos are projected to provide strong income streams due to their low operating costs and expected production expansions, positively impacting earnings.
  
• The potential for improved cobalt prices, driven by geopolitical factors such as the DRC export ban, could enhance net margins if these higher prices materialize and benefit existing cobalt streams.
  
• Ecora's focus on base metals, particularly copper, positions it well for future demand growth, which could significantly drive revenue and earnings, supported by its strong copper royalty portfolio and expected increases in base metal prices.
  
• A shift in revenue mix away from Kestrel to lower-tax jurisdictions in the base metals portfolio is anticipated to increase net margins due to a lower effective tax rate in the coming years.

Ecora Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ecora Resources's revenue will decrease by 2.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -16.5% today to 26.1% in 3 years time.
• Analysts expect earnings to reach $14.4 million (and earnings per share of $0.06) by about April 2028, up from $-9.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $17.9 million in earnings, and the most bearish expecting $10.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.9x on those 2028 earnings, up from -18.0x today. This future PE is greater than the current PE for the GB Metals and Mining industry at 9.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.13%, as per the Simply Wall St company report.

Ecora Resources Future Earnings Per Share Growth

Risks

• The cobalt market faced significant oversupply, driving prices to 50-year lows, which resulted in an impairment at Voisey's Bay stream, impacting revenue and earnings.
  
• The future income from the Kestrel royalty is poised to decline as production moves out of the royalty area, which can reduce Ecora's future cash flows and net margins.
  
• The company’s reliance on Mimbula and Mantos Blancos for growth places pressure on these projects to deliver expected copper production to support revenue and earnings growth.
  
• Increased borrowings due to the Mimbula acquisition and subsequent debt repayments may strain free cash flow, impacting the company's ability to invest further, affecting earnings and capital under the current debt structure.
  
• The dependency on external market and geopolitical factors like the DRC's cobalt policies introduces uncertainty into pricing structures, affecting profit margins and revenue predictability.

Valuation

• The analysts have a consensus price target of £1.24 for Ecora Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £1.5, and the most bearish reporting a price target of just £1.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $55.3 million, earnings will come to $14.4 million, and it would be trading on a PE ratio of 36.9x, assuming you use a discount rate of 9.1%.
• Given the current share price of £0.53, the analyst price target of £1.24 is 56.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.