The effective management of risk is integral to delivering our strategy
The Board and the Executive Committee provide oversight of our principal and emerging risks, and the Audit Committee monitors the overall effectiveness of our risk management processes and internal controls. As understanding and effectively managing the Group’s risks are fundamental to being able to execute our strategy, we are committed to a robust system of identifying and responding to the risks we face.
Risk management process
Our risk management process is designed to be a consistent and clear framework for embracing, managing and reporting risks from the Group’s business activities to the Executive Committee and the Board by allowing us to:
- Understand the risk environment, identify the specific risks, and assess the potential opportunities and exposure for Ecora.
- Determine how best to deal with these risks to manage overall potential exposure.
- Manage the identified risks in appropriate ways.
- Monitor the effectiveness of the management of these risks and intervene for improvement where necessary.
- Report to the Executive Committee and Board on a periodic basis on how principal risks have been managed, and are being managed and monitored, with any identified enhancements that are being made.
The impact of risk on our strategy and viability
Risk can arise from events outside of our control or from operational matters. Each of the risks described on the following pages can have an impact on our ability to deliver our strategy and on the Group’s ongoing viability.
1. Identify
Material risks that we consider may lead to threats to our business model, strategy and liquidity are identified through our risk management framework which encompasses the analysis of individual processes and procedures and consideration of the strategy and operating environment of the Group.
2. Access
We analyse the risks and evaluate their commercial, strategic, regulatory and other impact as well as the likelihood of occurrence together with the mitigating controls in place.
3. Monitor
The executive management team is responsible for the dayto- day monitoring of the controls and progress of actions to manage principal risks. It is supported through the Group’s audit and assurance programmes and the principal risks are reviewed on a semi‑annual basis by the Board.
4. Respond
We respond to changes in the materiality of risks by reviewing the mitigating actions and checking that they are still appropriate for the level of risk.
Emerging risks that are currently being monitored are:
Cause
The physical impacts from climate change, together with the impact of the response to address climate change, may have a significant impact on the Group’s existing portfolio of royalties and streams together with its ability to acquire further royalties and streams in the future.
Commentary
During 2024, we again assessed the physical and transitional risks and opportunities associated with climate change.
While our assessment to date does not indicate that climate change will have a material adverse impact on the Group’s business model given the commodity mix underlying our portfolio, the assessment is an iterative process, as assumptions relating to both the physical and transitional impacts are refined. As a result, we continue to classify climate change as an emerging risk.
Cause
Persistent higher rates of inflation continue to be experienced across most of the jurisdictions in which the mines and mills underlying the Group’s portfolio are located.
The increased costs could delay or prevent expansion projects or development projects in the case of our non-producing royalties.
Commentary
The royalty model largely insulates the Group from the impact of inflation, with costs primarily limited to corporate overheads in comparison to the operating costs and capital expenditure incurred by the operators of the mines and mills underlying the Group’s portfolio.
The significant increase in operating costs and capital expenditure could result in projects becoming uneconomic with operations or development suspended temporarily or entirely. This could in turn result in delays over the short term of royalty revenue and potentially impact the valuation of the Group’s royalties. To address this potential risk, the Group’s strategy is to acquire royalties and streams over projects operating in the lower half of industry cost curves which provides headroom to protect the economics of the underlying project.
This risk is closely linked with the principal risk of ‘operator dependence’ and ‘investment success’, particularly with a focus on the cost curve position of the investments undertaken and the ability of operations to remain economic through cycle.
Cause
Severe supply chain and logistics disruptions have the potential to impact not only the production and distribution of our operators’ underlying commodities but also the timely delivery of development projects in the case of our non-producing royalties.
Commentary
Supply chain and logistics disruptions continue to be observed, typically resulting in higher capital expenditure and maintenance costs. While the Group is shielded from such costs through the royalty model, there is the potential for delays over the short-term of royalty related revenue.
This risk is closely linked with the principal risks of ‘operator dependence’ and ‘geopolitical events’.
The Group's principal risks and uncertainties are:
A potentially catastrophic incident such as a mine shaft failure, slope wall failure, fire or flood at one of the operations underlying the Group’s portfolio or royalties and streams, which could result in the loss of life, the destruction or loss of ore body or render it uneconomic.
Cause
Inadequate design or construction, adverse geological conditions, natural events such as seismic activity or floods.
Impact
A major incident could result in our mining partner losing its licence to operate. In addition, such an incident could result in loss of resource or destruction of the ore body together with a halt in production or metal deliveries, resulting in lower cash flows, potential impairments/valuation losses, ability to service debt obligations and limiting the Group’s ability to pursue its growth strategy.
Mitigation
Although these risks cannot be easily mitigated or transferred, the Group undertakes extensive due diligence engaging both internal and external experts to assess the viability of the project, before proceeding with an investment.
The Group monitors, through ongoing engagement with its mining partners, technical and ESG related matters. Any significant ESG risks and opportunities are reviewed and discussed by the Sustainability Committee.
Commentary
While such risks have a low frequency, their impact is potentially very high, as a result they are treated with the highest priority.
Climate change risks and opportunities:
Physical risk
Ecora Resources’ success will depend on the Board making sound investment decisions to ensure that the royalties and streams acquired match or exceed expectations at the point of acquisition.
Cause
The actual performance of the royalties and streams acquired fail to achieve the expected returns, due to variations in the commodity prices, production volumes and start dates assumed in the investment base case model.
Impact
The underperformance of an investment could result in the inability to achieve cash flow or profitability targets. In turn the Group’s ability to obtain funding for future growth, service its debt obligations and provide shareholder returns could be significantly reduced.
Potential damage to Ecora Resources’ reputation, and loss of support from stakeholders.
Mitigation
The Group undertakes a thorough due diligence and screening process when considering each investment opportunity, which is key to reducing the risks of making a bad investment.
Disciplined approach to investment, with all material investments subject to review and challenge by the Executive Committee and the independent Directors.
Commentary
Despite positive momentum at Voisey’s Bay as operations continue to ramp up, the impact of a lower pricing environment has resulted in an impairment charge in the period. While the Group’s stream is expected, based on consensus pricing to generate less income over its life, the income profile over the next three years adequately supports the Group’s borrowing position and projected leverage profile.
In addition, the timing of first income from West Musgrave has been pushed out compared to the investment case, following BHP’s decision to temporarily suspend construction given the weakness in the near-term outlook for nickel pricing.
The issues experienced at these operations reflect short-term supply shocks which have impacted significantly on pricing. Pricing is often very difficult to predict and can be influenced by events outside of the Group’s or the operators’ control. However, the Group seeks to obtain exposure to long-life assets which are sufficiently low on the cost curve which can remain operational and profitable through cycle. Whilst short-term lower pricing can be endured, it is vital that technical and operational aspects of the Group’s diligence are accurate such that existential issues around investments do not materialise.
Climate change risks and opportunities:
Transition risk and opportunity
Demand for financing via royalties and streams may change depending on macroeconomic conditions.
Increased competition within the royalty and streaming sector may impact the ability to continue adding accretive assets to the portfolio.
Cause
High commodity price environments typically reduce the demand for near-term financing through royalties or streams, as operators have greater access to conventional sources of financing. Conversely inflationary pressure and increases in cost of capital for operators may increase the demand for near-term financing through royalties and streams.
Increased competition in the royalty and stream sector could also make it difficult to execute deals.
Impact
Royalties and streams are, by their nature, depleting assets, and as a result failing to acquire new assets may lead to lower cash flows, profitability and valuation, which in turn limit the Group’s ability to pursue its growth strategy.
Mitigation
Disciplined application of investment criteria which includes the preference for long-life assets that will generate returns through the cycle.
Ecora Resources has built a credible global brand and network, backed by a successful track record of identifying and executing royalty transactions.
Commentary
The Group has remained active with two acquisitions in the past twelve months and has a stable medium-term revenue profile to support growth initiatives. In addition, the Group’s portfolio of development stage royalties, notably the royalties over the Santo Domingo copper-iron ore project and Phalaborwa Rare Earths Project will provide medium to long-term portfolio contribution growth, while the option to upsize the Piaui royalty provides an additional organic growth opportunity within the existing portfolio.
The Group continues to face competition for royalty and streaming opportunities although the last two acquisitions were on a bi-lateral basis, leveraging the Group’s network and connections. Competition from larger precious metals peers is expected to continue, as they look to increase their exposure to critical minerals. The ongoing competition within the royalty and streaming sector has not changed in comparison to 2023; therefore, the risk of future demand remains neutral year on year.
Climate change risks and opportunities:
Transition risk
Global macroeconomic conditions leading to sustained low product prices and/or volatility.
Cause
Commodity prices react to many macroeconomic events. Recent examples include armed conflict involving major economies, global trade disputes and sanctions and economic slowdown in a leading economy.
Impact
Low commodity prices can result in higher cost operations becoming uneconomic which can in turn result in lower levels of cash flow, profitability and valuation. Lower cash flows and valuations may in turn constrain the Group’s ability to fund the acquisition of new royalties and streams, or meet financial covenants associated with its borrowing facility.
Low commodity prices may also result in our mining partners delaying or suspending operations, which would also result in lower levels of cash flow and the impairment of the Group’s portfolio.
Mitigation
Maintaining a portfolio of royalties and streams that is diversified by both commodity and geography.
Regular updates of economic analysis and commodity price assumptions are discussed by the Executive Committee and the Board.
Disciplined approach to investment decisions, including the assessment of commodity price forecasts, with a focus on generating shareholder returns through the cycle.
Commentary
The Group’s diversified portfolio should reduce the impact of volatility in commodity prices. However, the significant decline in the nickel price over the past 18 months driven by new supply from Indonesian operators resulted in the closure of a number of Australian operators together with the announcement by BHP to suspend of the development of the West Musgrave project in July 2024.
In addition to the weakness in the nickel price, the cobalt price has remained depressed throughout 2024 as a result of DRC supply coming back online. The impact of lower cobalt price forward pricing has resulted in an impairment charge for the Group’s Voisey’s Bay cobalt stream in the period, despite improved operational performance.
As a result of the sustained weakness in both nickel and cobalt prices – two commodities which underpin the Group’s forward-looking portfolio – the commodity price risk has increased year on year.
Despite the supply side imbalance in certain commodities, particularly nickel and cobalt, there are some encouraging signs that countries are now seeking to monetise their natural resources in a more economic manner. The Indonesian and DRC Governments are seeking to implement supply controls designed to stablise prices, the effects of which are already being seen.
Climate change risks and opportunities:
Transition risk and opportunity
The Group is dependent on its counterparties operating effectively while upholding industry best practices to provide the returns expected at the time of investment.
Of the Group’s nine producing royalties and streams, two accounted for 73% of our portfolio contribution in 2024.
Cause
Ecora Resources is not directly involved in the ownership or operation of mines and mills underlying its portfolio. As a result, it is generally the owners and operators that determine the manner in which the underlying projects are mined, including decisions to expand, advance, continue, reduce, suspend or discontinue production, together with decisions about the marketing of the minerals extracted from the projects.
Impact
The timing and quantum of cash flows may differ materially from those expected at the time of investment, potentially resulting in asset impairments/valuation losses, reduced profitability and lower corporate valuation. Lower cash flows and valuations may in turn constrain the Group’s ability to fund the acquisition of new royalties and streams required to pursue its growth strategy.
Mitigation
When assessing potential investment opportunities, the Group undertakes extensive counterparty due diligence. For our existing portfolio, we maintain ongoing engagement with our mining partners, to understand the mine plans and development timetables associated with our assets.
On certain royalties and streams, the Group has information and audit rights which it generally exercises on the identification of any unexpected royalty outcome. It has also developed an ESG Risk Assessment and Monitoring Framework which assist pre- and post-acquisition reporting on matters which are fundamental to the Group’s investment thesis.
The Group aims to include transfer restriction/change of control clauses into its new royalty agreements to help ensure its exposure continues to be to trusted counterparties underpinned by strong ESG principles.
The Group is actively expanding and diversifying its portfolio of royalties and streams, as demonstrated by the Mimbula copper stream acquisition subsequent to year end, to ensure that it has a well-balanced and diversified source of income to reduce reliance on any one operation, operator, commodity or jurisdiction.
Commentary
As income from the Kestrel royalty winds down over the next two years, the Group’s income profile and financing capacity become more reliant on the successful ramp-up of operations at Voisey’s Bay and the development stage projects (Santo Domingo, Phalaborwa, Piaui and West Musgrave) over which the Group holds royalties commencing commercial production.
The decision by BHP to suspend the development of the West Musgrave project announced in July 2024, with the decision to be reviewed by February 2027, has resulted in the risk of operator dependence and concentration risk increasing year on year and highlights that even some of the most economic operations can incur market forces which result in commercial decisions being taken which differ from the investment thesis.
Climate change risks and opportunities:
Physical and transition risk
Geopolitical events and tensions have the potential to negatively impact our business.
Cause
Geopolitical disputes including armed conflict involving world powers and restrictions or constraints to free trade can have a direct impact on commodity prices. Furthermore, the results of recent elections could alter the outlook for commitments to climate change reduction and the speed at which countries commit to the energy transition.
The introduction of new policies linked to natural resources or capital controls as a result of changes in the domestic politics of the countries our counterparties operate may impact our business.
Impact
Commodity price and sales volume volatility experienced by the operations underlying the Group’s portfolio as a result of trade actions (increased tariffs, retaliations and sanctions) could lead to lower levels of cash flow, profitability and valuation, which in turn could constrain the Group’s ability to fund the acquisition of new royalties and streams, or meet financial covenants associated with its borrowing facility.
If capital controls are introduced by a country, this could subsequently lead to a counterparty being unable to remit funds to the Group.
Mitigation
The Group’s portfolio of royalties and metal streams is diversified by both commodity and geography.
Commentary
The ongoing war between Russia and Ukraine, the escalation of the Israeli-Palestinian conflict, together with China’s economic outlook, create uncertainty. In addition, the results from recent elections in the US with the threat of international tariffs and the withdrawal from international climate agreements result in the risk from geopolitical events increasing year on year.
The Group is dependent on access to capital in order to achieve its growth ambitions.
Cause
Sudden adverse change in capital market conditions, including higher cost of capital. Production issues or significant commodity price volatility.
Impact
The inability to access either debt or equity funding could materially impact the Group’s ability to achieve its growth ambitions.
Mitigation
The Group has a strong shareholder base and a syndicate of lenders who understand the royalty and streaming business model and are supportive of the Group’s strategy.
We regularly meet with advisers, shareholders and lenders to discuss the types of transactions we are considering to gauge their support.
Commentary
The Group has taken on additional leverage with its recent acquisition of a copper stream on the Mimbula operation. The leverage profile depends on the Group’s portfolio operating in line with expectations’ which supports a deleveraging profile over the next three years. Beyond this time horizon, the advancement of the Group’s development assets will be key to enabling the Group to continue financing acquisitions from its balance sheet.
The Group has extended the maturity of its borrowing facility to January 2028 and has no fixed amortisation or step-downs associated with the facility.
Climate change risks and opportunities:
Transition risk and opportunity
Ecora Resources needs to be well supported by all stakeholders including:
- Operating counterparties
- Employees
- Shareholders
- Lending banks
- Brokers/analysts
Cause
Failure to identify, understand and respond to the needs and expectations of our stakeholders.
Impact
A breakdown in the relationship between Ecora Resources and any of its stakeholders could materially impact its ability to achieve its strategy, fund future growth and execute on new acquisitions.
Mitigation
The Group’s Code of Conduct governs its interaction with all our stakeholders. In addition, the Executive Committee and the Board have regular and ongoing interaction with all of its stakeholders, with the support of external advisers.
Commentary
The Group has had considerable engagement with its largest shareholders during the year on a number of matters. In addition, the refinancing of the Group’s borrowing facility is testament to the support being received from the Group’s lending syndicate.
Climate change risks and opportunities:
Transition risk and opportunity