Deterra Faces Execution Risks Despite Strong Lithium and Iron Ore Royalty Growth

Robust Revenue Growth Amidst Portfolio Expansion

Deterra Royalties Limited (ASX: DRR) has delivered a strong portfolio update for the December 2024 quarter, reporting revenue of $59.3 million, an 11.7% increase from the prior quarter. This growth reflects both organic expansion and strategic acquisitions, notably the integration of Trident Royalties from September 2024, which has already exceeded expectations in its contribution.

The company’s flagship iron ore royalty at Mining Area C (MAC) in the Pilbara, Western Australia, continues to underpin steady cash flow. The completion of the South Flank expansion has driven record quarterly volumes, with production increasing 2.6% quarter-on-quarter to 34.8 million wet metric tonnes. This translated into a 4.6% rise in iron ore royalty revenue to $53 million, buoyed by higher sales volumes and improved realised pricing.

Thacker Pass Lithium Project: A Game-Changer for Deterra

Perhaps the most transformative development for Deterra is the progress at the Thacker Pass lithium project in Nevada, USA, operated by Lithium Americas Corporation (LAC). Subsequent to the quarter, LAC announced an updated mineral resource estimate that positions Thacker Pass as the world’s largest measured lithium resource and reserve. The project’s planned production capacity has doubled to 160,000 tonnes per annum of lithium carbonate equivalent (LCE), with an extended mine life of 85 years.

Crucially, financing milestones have been achieved, including a US$2.26 billion loan from the U.S. Department of Energy and a US$625 million joint venture investment from General Motors Holdings LLC, which now holds a 38% stake. These developments significantly de-risk the project and secure capital expenditure for Phase 1, targeted to commence production in late 2027. Deterra holds a 4.8% gross revenue royalty on Thacker Pass, which will reduce to 1.05% after a partial royalty buyback, highlighting the company’s exposure to this high-growth asset without additional capital outlay.

Diversification Through Gold Offtakes and Other Royalties

Deterra’s gold offtake portfolio also contributed $5.2 million in net realised margin from 109.8 thousand ounces delivered during the quarter. While margins per ounce declined due to pricing dynamics, delivered volumes increased, supported by strong production at several mines including Equinox Gold’s Los Filos and Fazenda operations. This diversification into precious metals complements Deterra’s base and battery metals exposure, balancing cyclical risks.

Additional royalties from projects such as the Paradox Lithium Project in Utah, the Antler Copper Project in Arizona, and the La Preciosa Silver Project in Mexico provide further growth avenues. Notably, La Preciosa has commenced underground development, with a milestone payment due to Deterra upon first silver production, underscoring the company’s broad commodity footprint.

Strategic Integration and Outlook

The successful integration of Trident Royalties has expanded Deterra’s global footprint and revenue base, positioning the company well for future synergies. CEO Julian Andrews highlighted the countercyclical diversification strategy and the tangible benefits of the royalty model, particularly in capital-intensive projects like Thacker Pass where Deterra’s exposure is leveraged without direct capital risk.

Looking ahead, the market will keenly watch for the final investment decision on Thacker Pass Phase 1, expected in early 2025, alongside updates from precious and base metals assets. Deterra’s ability to maintain strong cash flows while participating in high-growth battery metals projects could make it a compelling play in the evolving resources sector.