ADVISOR WATCHLIST
is the higher risk play amongst the small / medium producers and I am looking forward to their quarterly report next week .
Mike Baker
Provisional Advisor mbaker @ burrell . com . au ( 07 ) 5353 5224
Deterra Royalties Limited ( ASX Code : DRR ) recently de-merged from Iluka ( Iluka still retains a 20 % shareholding ). The business currently has one major royalty stream , that being the ‘ MAC Royalty ’, whereby Deterra earns 1.232 % of revenue from product mined from Mining Area C , a major growth hub for BHP ’ s iron ore operations . Further , Deterra earns one-off $ 1m per 1 million tonne increases in annual production capacity for the areas forming part of this area . BHP are on track to significantly expand production , with an almost 3-fold increase over the next few years . This will drive large profit increases for Deterra , in turn allowing them to pay out large fully franked dividends to shareholders as they have committed to paying 100 % of net profit after tax to shareholders . This is arguably one of the finest quality royalty streams anywhere in the world . Why ? BHP is one of the highest quality counterparties in excellent financial shape ( very low counterparty risk ), the asset is located in one of the world ’ s best mining jurisdictions ( Western Australia ) and the asset sits in the lowest quartile on the cost curve ( so the mine will generate substantial income even if iron ore prices were to fall significantly from current levels ). Finally , being a royalty business , Deterra does not carry any operational exposure or capex pressures . For investors looking to gain a low risk exposure to resources with fully franked income , Deterra is one to consider .
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