Let’s further investigate.
The post Deterra (ASX:DRR) share price falls on weakening iron ore prices appeared first on The Motley Fool Australia. –
The Deterra Royalties Ltd (ASX: DRR) share price is on the downtrend on Thursday.
At the time of writing, shares in the mining royalties company are 3.75% lower to $4.11. Today’s further share price weakness puts Deterra 8.6% below where it was a month ago.
Iron ore tumbles from its top
For those unaware, Deterra hit the ASX in October 2020 after successfully conducting a demerger from Iluka Resources Limited (ASX: ILU). Unlike many other ASX-listed companies, the way Deterra makes money is quite simplistic. Rather than selling a product or a service, it collects revenue by holding royalties on various mining tenements.
Currently, Deterra holds royalties over 5 tenements with Mining Area C (MAC) being its biggest. This tenement is one of the four hubs within the BHP Group Ltd (ASX: BHP) Western Australian Iron Ore operations. As you can imagine — it had been a good year for the royalty company as it clipped the ticket on 61.6 million wet metric tonnes of iron ore at an average realised price of $200 per tonne. However, since the end of June 2021, iron ore prices have weakened.
To illustrate, iron ore prices have traversed a cliff that began at $214 at the end of June and is now perched at $143 per tonne. Based on some rudimentary calculations, that means the price is down 33.1% in the space of a couple of months.
Unsurprisingly, this has dealt a blow to the momentum in iron ore mining shares such as BHP and Fortescue Metals Group Limited (ASX: FMG) in recent weeks. Likely investors of Deterra are now taking a closer look at what the impact on prices could mean for them.
Calculating the impact
Conveniently, Deterra included a chart in its FY21 full-year results presentation for estimating royalty revenue. Keep in mind this is specifically for the Mining Area C royalty revenue.
Essentially, revenue is a function of iron ore sales and the realised iron ore price. As an exercise, let’s run a hypothetical if output volume was to remain roughly the same but the realised price came down to ~$140 per tonne. In this case, Deterra’s revenue would likely be somewhere around $105 million.
For reference, in FY21 Deterra pulled in $145.2 million in revenue and $94.3 million in net profit after tax.
Deterra share price recap
Since listing in October 2020, the Deterra share price has fallen 10.4%. In comparison, the S&P/ASX 200 Index (ASX: XJO) has rallied 21% over the same period.
On a side note, Deterra is paying a dividend yield of 3.4% based on its dividends paid during the last financial year.
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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.