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Date : 20/07/2022

Deterra Royalties (ASX: DRR) Q4 Update

Deterra Royalties (ASX: DRR) is a high-quality dividend stock on the ASX that pays out 100% of its Net Profits as dividends. The firm announced its Q4 update, and with earnings season approaching, it is a good time to revisit.

Deterra operates the Mining Area C (MAC) project for BHP Group. It receives 1.232% of the revenue generated from iron ore sales arising out of the project.

It is a highly productive area with subsequently planned production growth. Since Deterra is purely a royalty company, it offers investors exposure to the resources sector without exposure to cost inflation, and operational or capital risk.

Q4 Production Update

The MAC area has been consistently increasing its production numbers throughout FY22. In the June 2022 quarter, production was 32.6 million wet metric tonnes (Mwmt). This represents an 11% increase compared to the prior quarter.

The South Flank of MAC is being expanded and is responsible for growth in production for MAC. Deterra reported that South Flank’s ramp-up to full production capacity is ahead of schedule. This increase will substantially increase Deterra’s dividend capacity in the short to medium term.

Total FY22 production reported at MAC was 111.1 million wet metric tonnes, an 80% increase on FY21 production. Deterra’s EBITDA margins hover around the 96% range.

Deterra is currently trading with a dividend yield of 5.5%. With increased production, the full-year dividends are thus expected to be higher. We expect a dividend uplift.

The full extent of Deterra’s royalty revenue and dividends will be announced in the company’s FY22 results in August.

Recommendation

Deterra’s production levels continue to expand, and the South Flank expansion is now ahead of schedule. Deterra’s production has increased in Q4, and dividend growth is expected for the full year FY22. We continue to recommend investors with exposure to DRR to Hold positions and income investors without exposure to ‘Buy’ ahead of the full-year results announcement.

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