Commodity exposure

Rising supply and subdued demand negativelyimpacted the price performance of cobalt in 2023.

Cobalt is predominantly produced as a by-product of copper and nickel mining, and rapid growth in nickel production from Indonesia led to a market awash with readily available supply. A number of Indonesian nickel laterite deposits - supported largely by Chinese operators - have come online faster than many observers had expected.

Despite the rise of Indonesian supply, the Democratic Republic of Congo (‘DRC’) remains the primary source of cobalt. Logistical bottlenecks seen in 2022 eased, while the successful ramp up of the Kisanfu copper mine, and the lifting of export restrictions at Tenke Fungurume led to greater availability of supply.

Growing demand from battery producers was limited as a number of electric-vehicle manufacturers either tempered their sale forecasts, or opted for cobalt-free battery chemistries. Demand from the stainless steel market remained robust despite slow global growth.

Cobalt hydroxide prices from the DRC negatively weighed on the cobalt metal price throughout the second half of the year, with alloy grade material trading rangebound between $16-19/lb. The price of cobalt metal (alloy grade) fi nished the year at $16/lb, down 27% from the start of the year.

Ecora impact:

• Ecora would consider increasing its existing cobalt exposure should there be an opportunity at an attractive entry point.

A number of supply shocks over 2023 flipped expectations of an upcoming surplus to a near term shortage of supply.

Notable hits to supply towards the end of the year included the cessation of mining activities at one of the world’s largest mines, Cobre Panama, operated by First Quantum. Guidance was slashed at a number of other high profile producers, namely Anglo American, Rio Tinto, Vale and Boliden amongst others.

These reductions did not materially move the price of copper however, which traded between $3.55-3.99/lb over the second half of the year as the market remained wary of China’s structural challenges and slowing global demand drivers. Further factors curtailing copper demand were the strength of the US dollar, and rising global interest rates.

The backdrop for copper prices going forward appears promising as global economies drive for increased electrification at a time of shrinking supply and lower grade profiles of existing mines. Bringing additional supply online is further hampered by increased permitting hurdles, rising costs and difficult geological settings.

The copper price fi nished 2023 at $3.84/lb, up 1% from the start of the year, and averaged $3.85/lb.

Ecora impact:

• The long term market outlook remains positive and Ecora will look to continue adding further copper royalties to the portfolio.

Steel-making coal, or metallurgical coal, was one of the top performing commodities of 2023, closing above $320/t, up 12% over the course of the year.

The record high prices of 2022 following Russia’s invasion of Ukraine tempered somewhat, but remained elevated throughout the year. Prices bottomed in Q2 and Q3 as optimism faded from an expected rise in demand linked to China’s reopening, but still remained well above the rolling five year average. Robust demand from China and India, as well as supply concerns from Australian producers (linked to technical issues and turbulent weather patterns), then led to a price rally towards the end of 2023.

Indian imports have offset weakness from European markets where the steel industry has struggled in the light of elevated energy costs, lower demand and a shift towards less carbon intensive forms of steelmaking. China’s steel output has remained robust despite the continued domestic property slowdown, with high blast-furnace utilisation as scrap metal became harder to find.

Near-term conditions appear supportive of current prices, but supply is forecast to pick up as technical issues are resolved and weather disruptions in Australia subside. The steel-making coal price averaged $291/t throughout 2023.

Ecora impact:

• The current price environment for steelmaking coal is driving material portfolio contribution from the Kestrel royalty.
• There are no plans to invest additional capital into steelmaking coal.

Growth of large capacity projects in Indonesia was responsible for a 45% fall in the price of LME nickel in 2023.

Market tightness at the end of 2022 evaporated as Chinese producers took advantage of high prices to convert intermediate nickel products from Indonesia into class 1 nickel suitable for trading on the LME. This led to a rapid restocking of inventories during the second half of 2023, increasing by approximately 75%.

The pace of electric vehicle adoption has slowed compared to expectations which has led Western manufacturers (who typically favour energy-dense, nickel based battery chemistries) to push back sales targets, Asian manufacturers have also tended to opt for battery chemistries absent nickel and cobalt which has dampened near-term demand for the metal.

Growth in stainless steel production and nickel use in electric vehicle batteries both increased year on year, but it was not enough to offset the rapid increase in supply. Prices have subsequently weakened further in early 2024, causing higher cost producers to cease operations. Prices will likely continue to trade into the cost curve until such time that enough supply has been curtailed, or demand catches up.

The nickel price fi nished 2023 at $7.43/lb, and averaged $9.75/lb.

Ecora impact:

• Continue to focus on nickel projects such as West Musgrave and Piaui which are low on the cost curve.
• West Musgrave project will potentially see the operator review phasing of capital expenditure.
• Bottom of cycle prices could represent an interesting point of entry for new royalties.

Uranium continues to benefit from improving global sentiment towards nuclear energy and security of power supply.

Uranium prices went from strength to strength during 2023 as governments backed nuclear energy as a source of low-carbon and reliable power. Utilities were focused on security of uranium supply as question marks remained over the future accessibility of Russian material, as well as production shortfalls in Kazakhstan and a coup in Niger. Supply is notoriously difficult to bring on line, and with historically low investments in greenfield and brownfield deposits since the Fukushima disaster in 2011, utilities looked to shore up their inventories throughout the year.

Uranium is usually traded in the form of long term contracts; however, the scramble for supply has required market participants to be more active in the spot market – pushing spot prices above $100/lb in early 2024. The average price for spot material in 2023 was $62.50/lb, 25% higher than the average price in 2022.

Ecora impact:

• Elevated prices should, over time. translate into increased revenue from the Four Mile royalty.
• Higher prices could accelerate development of previoulsy idle deposits.

Iron ore shrugged off concerns of a faltering Chinese economy and continued weakness in the property market to rise 18% during 2023.

Low margins at Chinese steel mills ensured iron ore required in blast furnaces was preferred to the difficult-to-source scrap metal used in electric-arc furnaces. Blast furnace utilisation throughout the year was approximately 80%, near 2020 peak levels. 62% iron ore averaged $114/t during 2023, and finished the year at $132/t.

Vanadium is a key material in steel-making, specifically used to increase strength and durability. It has a rising end-market use in vanadium redox batteries, which is a growing battery type for stationary storage. The price of vanadium peaked at $10.80/lb in February, before falling to $6.53/lb at the end of the year. The average vanadium price over the period was $8.34/lb.

Ecora impact:

• Continue to look at opportunities in commodities such as rare earths, graphite, lithium, zinc, tin and high purity manganese that would round out the commodity basket.