The mining royalty opportunity isn’t a new concept, having been popular North America for some time, but Trident Royalties’ (LON:TRR) move to AIM created one of the first London-listed vehicles with exposure to mining royalties and associated benefits of rising metal prices.
In June 2020, Trident Royalties listed on London’s AIM and in the process raised £16 million to begin building a diverse portfolio of mining royalties.
Trident Royalties’ business model allows investors to gain exposure to a diversified portfolio of metals without the challenges associated with junior miners such as high operating costs and risk of dilution.
There are several royalty structures Trident operates that entitle them to payments over the life of a mine. Royalties can encompass features including fixed payments and sliding scale payments but generally earn a percentage of turnover from a mines’ production.
These mining royalties allow Trident to benefit from upside in metal prices by receiving royalties in return for investment in mining projects operated by an independent mining company.
In addition to upside in metal prices, mining royalties provide life-of-mine revenue upside in the form of increased reserves generated by exploration activity, and the possibility of revenue being earnt quicker than previously expected, if production increases, at no cost to Trident.
Indeed, Trident Royalties is classed as an investment company rather than a mining company by the exchanges.
Through a series of well-timed acquisitions, Trident Royalties has built a portfolio of 11 royalties representative of the global metals markets including copper, gold and iron ore with future plans to acquire royalties for mines producing metals used in electric batteries.
Since listing on AIM in June last year, Trident has acquired royalties in a range of products including producing mines and those still in the exploration phase.
Producing projects include the Koolyanobbing Iron Ore project in Western Australia from which Trident received A$2.1m in the first three quarter in 2020. Royalties that will start generating revenue for Trident in the future such as the Lake Rebecca Gold Royalty mean investors can look forward to higher revenues long into the future.
Low Operating Cost model
Trident Royalties is still very much in the growth stage of their business and is allocating royalty revenue to the acquisition of further royalties, a period the company sees as a rapid growth phase in an effort to achieve ‘critical mass’, following which investors can expect a balance of capital growth and dividend income.
The strength in Tridents model is derived from the ability of the company to increase revenue without increasing fixed overheads. This makes the prospect for margin expansion very attractive when compared to mining companies who would be see incremental increases in operating costs.
Trident avoids the increased costs of operating a mine entirely and enjoys only life-of-mine revenue.
Although Trident has no plans to pay a dividend in the immediate future, it would be hard to imagine such a model not supporting a progressive dividend policy in the future.