Extract a flow of copper- bottom mining returns
LITTLE more than a year ago, copper was trading at around $4,500 (£3,200) per ton. Over the past few days, the price has topped $10,000 and forecasters expect it to keep rising through the summer.
Other metals tell a similar story. Aluminium, zinc and nickel have shot up since last spring, while iron ore prices have more than doubled from around $85 a ton to around $ 190 a ton. Experts are now talking about a commodities ‘super-cycle’, where prices carry on rising for years.
It is easy to understand why. Economies are recovering fast from the Covid-19 pandemic and governments around the world are splashing out on infrastructure spending, using those metals to build roads and railways, hospitals and schools, broadband cables and electricity pipes.
Trident Royalties offers investors a way to benefit from all this activity and more. The company listed on the stock market last year. The share price is 34.5p and should increase materially over the next 12 months and beyond.
Mining royalty finance is relatively unknown in the UK but it is widely deployed in the US and Canada. In essence, royalty firms lend money to miners and r eceive a percentage of t heir revenues in return.
Often used by companies which have yet to move into production, the system offers mining groups an alternative way of raising money, without borrowing from the bank or selling shares. Once revenues start to flow however, the agreements provide royalty firms with a steady source of income over many years.
Most American royalty firms focus on precious metals. Trident intends to be different, taking up royalty deals with a range of mining groups from across the world.
The company has already signed seven royalty agreements, covering copper, iron ore, gold and most recently lithium, a critical component of electric vehicles. An eighth transaction is expected i mminently. Deals are spread across North and South America, Africa and Australia.
A couple of minesites are already generating revenues, four are coming close and only one – a gold mine Down Under – is still at the exploratory stage.
Covering a variety of metals means that Trident is less exposed to price fluctuations than more narrowly focused peers. And the company has so far proved that it can buy well, securing decent prices and selecting assets that have increased in value since they were acquired.
This success at least in part reflects the experience of co-founders Adam Davidson and Tyron Rees, both of whom worked at mining focused private equity firm Resource Capital Funds for several years before launching Trident.
The duo realised t hat, even though royalty finance is well established in the mining world, there was not a single listed company interested in securing small to medium-sized royalties across the entire metals industry.
Tr i dent ’s deal s r a nge from $ 500,000 t o $ 28 million, often beneath the radar of more established royalty players, whose deals can run into hundreds of millions of dollars.
While large deals are subject to increasing competition, as metals prices rise, there are still rich pickings to be found at the smaller end of the market.
Davidson and Rees are also careful about the metals they choose, seeking out those where demand is likely to be strong and sustained. Copper, for example, is not just used in construction but is a key component of electric cabling too and a big beneficiary of the renewable energy revolution.
Iron i s the most widely used metal in the world and with Presi dent Biden pledging to spend $ 2 t rillion on i nfrastructure i n America, China’s Xi Jinping earmarking as much if not more for construction at home and abroad, and Boris Johnson eagerly pursuing a national infrastructure plan, the outlook for iron ore seems to be set fair.
Davidson and Rees have big a mb i t i o n s f o r Tr i d e n t . T h e company is expected to generate revenues of around $4 million this year but that should increase rapidly in the next couple of years and gain ground thereafter, as more royalties are acquired and existing assets move into production.
Established royalty stocks, such as London- listed Anglo Pacific, are known as generous dividend payers. Trident is at an earlier stage but hopes to start a dividend programme within the next few years.