The last year has been challenging for the global financial industry: in 2022, geopolitical tensions rose with a war in Ukraine and then, in 2023, war broke out in the Middle East. Both have potential for escalation, as we have seen with the recent attacks on ships in the Red Sea. Grant Shapps, the UK Defence Secretary, described the world as moving from a post-war period to a pre-war period where "combined threats risk tearing apart the rules-based international order."
Within the mining industry, we experience these rising geopolitical tensions through an ever- shrinking field on which it is prudent to invest.
Twenty years ago, China, India and Russia were open for foreign resource investment, but this is no longer the case. In the last ten years, large parts of Africa have been effectively closed to Western investment with military coup d'etats in Sudan, Guinea, Burkina Faso, Niger, Mali, Gabon and Chad. In more recent years, several Central and South American governments have been elected by a populace more sceptical of the mining industry with Panama, in 2023, choosing to permanently close its world-class Cobre Panama Mine in the face of political protests.
Taking these factors into account, the supply side of our industry is going to face increasing challenges whether from regulatory delays, community dissent or events of expropriation. The Mining Journal's World Risk Report amply demonstrates this where the number of mining jurisdictions that are considered high risk has increased from 18 to 36 in the last five years. We can expect commodity prices to rise over time due to these difficulties, as well as the entirely appropriate, but ever-increasing, costs associated with developing mines in serenity with modern community, environmental, safety and other standards.
For most investors in junior mining companies, the height of the rising wall is believed too high to scale. Many junior mining companies have seen their shares descend in value over time in the face of repeated (and dilutive) capital raises, delays in permitting, changing commodity prices, political interference, capricious litigation and project expropriation. It is therefore unsurprising that, of the junior mining companies listed on the TSX Venture Exchange and AIM markets, approximately 60% and 35% of them, respectively, have a market cap of less than US$10m.
What does this mean for Trident Royalties?
First and foremost, it means that Trident is likely to have more and more opportunities to help provide a capital solution to our counterparties in the resource industry. Second, we must continue to be selective about which projects to back. In 2023, we demonstrated our screening process by filtering out all but four material projects that received Board approval for investment; namely, two royalties in the USA (copper and lithium), one in Mexico (silver), one in Mali (gold).
The decision to invest in our Mali asset was taken after extensive deliberation. We considered a range of factors, but ultimately concluded that the risk was justified on the basis of (i) the long term presence of the operator (B2 Gold) in Mali, (ii) the size of the operator; (iii) the importance of the Fekola mine to the operator's business (circa 600k oz per annum), (iv) the potential for near-term cash flow; (v) exploration upside, and (vi) the linkage of a substantial part of the consideration to royalty receipts.
We can assure our shareholders that we will continue to exercise prudence in our decision making. Trident has a strong and effective board, as well as a highly competent management team. The Board meets regularly, including the CEO and CFO, to consider and debate investment opportunities and strategy. The Board has a broad diversity of opinion, skills and experience, and is always conscious of its responsibility, as a fiduciary, to our shareholders.
We continue to maintain our strategy of building a diversified portfolio of royalties, which broadly mirrors the commodity exposure of the global mining sector and where the asset owner demonstrates a commitment to safe, efficient, cost-effective operations where ESG impacts are managed in a responsible manner. Over time, our business model will lead to our investors being exposed to a diversified range of commodities and a balanced exposure to geopolitical risks. Over time, our portfolio will also mature and eventually underpin a dividend when we can reliably predict strong cash flows from long-life assets. As previously stated, the Board recognises the importance of returning cash to its shareholders.
Since listing in 2020 with a single royalty, we have made good progress on this journey with our portfolio now consisting of 21 assets, of which 12 are cash flowing. In tandem, we have been able to progressively reduce our cost of capital, most recently transitioning our debt funding to a revolving credit facility, significantly lowering borrowing costs and increasing balance sheet flexibility. This improves our competitive positioning for asset acquisitions and will enhance returns to shareholders.
Finally, I would like to add my thanks to our shareholders and long-term supporters throughout a difficult year.
We believe that the next few years will be very exciting and I look forward to reporting on our progress.
Chief Executive Officer's Statement
2023 saw Trident capitalise on the wider economic landscape of softer equity markets by pursuing an aggressive acquisition strategy which added to the scale and diversification of the portfolio. Our objective of acquiring and aggregating value accretive royalties has been yielding results as evidenced in increasing revenue returns totalling US$11.0m in 2023, and we are confident in future revenue growth as portfolio assets either expand or advance into production.
Due to weak equity markets, 2023 saw mine operators increasingly seek alternative sources of financing leading to a total of four material acquisitions in the year. In the first half of 2023, we acquired royalties over the La Preciosa Silver Project, while in the latter part of the year, we announced transactions over the Paradox Lithium Project, the Antler Copper Project and the Dandoko Gold Project, further bolstering our exposure to lithium, copper and gold.
In addition to the growth of the portfolio through acquisitions, we have seen material organic growth as several key assets progress through project milestones. At the beginning of 2023, we confirmed the completion of a sale of several pre-production gold royalties acquired shortly after listing in 2020, in exchange for cash proceeds of up to US$15.55m, crystalising a 140% ROI. This strengthened our cash position and the value unlocked by this transaction supported our objective to successfully reduce our cost of capital through a restructuring of our existing debt facility. Other key acquisitions made shortly after listing in 2020 have now had time to mature, with the royalties over the Koolyanobbing Iron Ore Mine and the Mimbula Copper Mine having fully recovered their initial acquisition costs by mid-2023, with further mine life remaining at both projects.
One of Trident's cornerstone assets, our portfolio of gold offtakes, performed well across 2023, delivering increased year-on-year revenues across all four quarters buoyed by strong gold prices and volatility. With the Greenstone Gold Project targeting first production in H1 2024, we expect the growth in ounces delivered to Trident to continue into 2024. At Thacker Pass, we were delighted to note favourable court rulings at the start of the year allowing the project, the largest known lithium resource in North America, to commence construction. The project reaffirmed its status as a Tier 1 asset, with the operator Lithium Americas announcing it had secured US$650m in funding from General Motors and recently announcing it has received a conditional commitment from the U.S. Department of Energy for a US$2.26 billion loan under the Advanced Technology Vehicles Manufacturing Loan Program.
As Thacker Pass advances through the construction phase, we have looked to increase our interaction with North American investors and were pleased to be admitted to trading on the OTC market allowing us to increase accessibility and strengthen our engagement with US investors. This strategy was further strengthened with two further acquisitions over royalties located in the US in 2023 and is a focus for 2024.
Following the completion of several deals in the latter half of the year, we were able to further reduce our cost of capital with a new debt facility which also provides greater flexibility in managing our cash and increases our potential borrowing capacity. By lowering our cost of capital, we have directly increased our competitiveness with regards to making new acquisitions.
I would like to thank our shareholders for their continued support throughout a difficult year for equity markets across the sector. I stand confident in our investment strategy and believe that the material organic growth we are seeing across our portfolio, as well our active acquisition of value-accretive royalties, will continue to drive long-term revenue growth and deliver shareholder returns.
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SOURCE: Trident Royalties PLC
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