Deterra Strategy

Interesting looking at Deterra's recent presentation, specifically their analysis of the global royalty space and misguided belief that they do not face much competition in the non-precious space. Whilst laying it on thick on ESG they also note the following "Globally, the listed mining royalty company universe has a total market capitalisation of ~US$60bn.Only 9% of that market capitalisation is dedicated to the non-precious metal segment. Deterra's analysis suggests that this segment is underserved, with non-precious metals accounting for 29% of the opportunity pool. Deterra is one of the leading companies in the non-precious metal royalty segment and focused on bulk, base and battery metals."

If Deterra management actually had some royalty business development experience, they would realise that most royalty companies (regardless of branding themselves as "precious focused") would go after iron ore royalties these days. They have significantly more competition in this area than they know or wish to acknowledge (and these competitors are more aggressive and more nimble). Two examples (of many) of non-bulk royalty companies that have acquired iron ore royalties (during the time that Deterra has been listed) are Franco Nevada and even Vox Royalty Corp which today announced an acquisition in Deterra's own backyard.
1) https://www.prnewswire.com/news-releases/franco-nevada-adds-iron-ore-royalty-exposure-301271406.html
2) https://www.newswire.ca/news-releases/vox-acquires-producing-wonmunna-royalty-in-western-australia-and-provides-2022-revenue-guidance-808825684.html

The real challenge for Deterra management is that they inherited one of the highest quality assets in the industry and it will be virtually impossible to a deal which does not 'dilute" the asset quality. There is a real danger that management either never does a deal or eventually buckle under the pressure to be seen to do something (and end up doing an expensive of poor quality transaction).

The only sensible option (which quite a few commentators have pointed out) seems to be to cut overheads, give up on business development (and ESG) and just pass the cash on to shareholders. It will be an interesting couple of months as it seems inconceivable that they can just keep the status quo going.