Trident Royalties could be set for a major re-rating as investors wake up to the value of its lithium and gold assets

There are three aspects of the Trident Royalties investment proposition that mark it out from the pack.

The first two are fairly straightforward.

The third is a little more nuanced.

Number one – it’s listed in London. This may seem unremarkable, since for more than a century London has been one of the world’s major hubs for mining finance. Nevertheless, mining royalty companies are - and always have been - very thin on the ground in London. With the recent subsuming of London-listed Altus into Canadian-listed Elemental, we’re back to the previous long-standing state of affairs, which is that aside from Ecora Resources (formerly Anglo Pacific), Trident Royalties is the only royalty company of note that London’s investors can hit the bid on.

Trident is a bit different from Ecora, though, which brings us to the second point.

Trident aspires to be a royalty company with a portfolio that’s representative of the entire mining sector. In theory this means that in the long-term it will hold a portfolio replete with base and precious metals, specialty metals and bulk commodities, and conceivably even precious stones. Ecora has coal and some base and battery metals, but it has no aspiration to be representative in this way, and nor do many other royalty companies anywhere else.

Canada is the main hub for royalty companies, and there are scores of them, and some have even grown into huge billion-dollar concerns. But almost all are focussed on precious metals. Even Elemental, the company that absorbed the UK’s Altus, is primarily a gold and copper royalty company, with a smattering of other metals represented at the pre-production level.

But here we get to the third, and more subtle point about the Trident investment proposition – it’s still a work in progress.

So, although the aspiration is for the company eventually to hold royalties representative of all the mining commodities, the current reality is somewhat different.

At the present time, and following a couple of very recent transactions, Trident is heavily weighted towards lithium and gold.

In particular, it holds a valuable royalty on the Thacker Pass lithium project in the USA, which company chairman Al Gourley noted in interim results this week could well end up delivering income to Trident of US$30mln per year. It also owns another US lithium royalty, recently acquired, and has a low cost option on the Sonora lithium project, which will be familiar to London investors who followed the Bacanora story.

In gold, Trident has a broad portfolio which generated revenue of just over US$3mln in the six months to June 2023 and are operated by a selection of quality Canadian operators. Trident also has significant exposure to earlier stage exploration and development assets operated by household names like B2Gold and Equinox Gold (TSX:EQX). The company has also showed itself as adept at trading in gold royalties, having just realised a significant profit from the sale of certain Australian assets which were only acquired a couple of years ago.

Now, why is this current weighting to gold and lithium significant?

Precisely because these are two of the commodities that are likely to be most in demand over the medium term.

Despite all the hand-wringing and promising of politicians, and despite even significant interest rate rises, no-one really doubts that the long-term debasement of all the world’s major fiat currencies will continue. That’s why gold is still holding at levels not too far from US$2,000 per ounce, in spite of all the adverse conditions central banks can throw at it.

And meanwhile, the drive for green energy continues, and the world’s lithium assets are becoming more sought after – witness the ongoing controversies around Sonora, and the reason Trident only has an option at this stage rather than a direct interest.

Any commodity investor worth his or her salt would surely put lithium and gold right at the top of a portfolio wishlist looking out over the next couple of years, with copper and other battery metals also scoring as highly desirable.

And Trident has every intention of adding more royalties to the portfolio, and soon. According to Trident’s chief executive Adam Davidson, talks are ongoing on potential deals that may get announced sooner rather than later.

There was US$25mln in the bank as at the end of June to help the company fund any deals, but with overall revenues beginning to build, and earnings of over US$10mln for the most recent six months, other financing options are beginning to open up too.

Trident is becoming a company that will be able to leverage capital in several different ways at once, and if all the royalties on mines that are now in development come on stream as planned, that firepower will start to grow exponentially.

It’s also able to be creative in the way deals are put together, deferring sizeable parts of the consideration payments for its most recent acquisitions till after the royalty payments actually start coming in – nifty, if you can manage it.

Times aren’t easy in the mining sector. But for a royalty company like Trident, that’s usually good news. Financing is hard to come by, and deals on royalties are more likely to be struck. So watch for more deal-making activity in the closing months of 2023, and more income in 2024.

Liberum’s price target is 81p, almost double where the shares are now. And Liberum might not be far wrong.