The Deterra Royalties Ltd (ASX: DRR) share price is outperforming this morning after it announced a big jump in quarterly royalties.
The Deterra share price jumped 0.5% to $4.39 at the time of writing. While that’s in-line with the S&P/ASX 200 Index (Index:^AXJO), it’s still a win for Deterra as the sector is wallowing in red.
The BHP Group Ltd (ASX: BHP) share price slipped 0.6% and the Rio Tinto Limited (ASX: RIO) share price is flat.
Deterra share price jumps on royalty boost
Deterra’s main royalty earner is from Mining Area C (MAC). BHP operates the mine and pays Deterra a royalty, which surged 49% to $36.3 million in the March quarter versus the December quarter.
The increase is even more pronounced when compared to the same period in 2020. Royalities increased by 70.4% against this measure.
The big step-up in royalty payments is due to higher sales volumes and stronger iron ore prices. As reported this morning, the premiums paid for the immediate delivery of a range of commodities have jumped to a more than 14-year high.
Biggest income driver for Deterra
MAC is the largest contributor to Deterra’s royalty income. It also received around $100,000 from a mineral sands operations in Western Australia.
While that payment halved in the March quarter compared to the previous quarter, investors aren’t perturbed as it’s literally a rounding error for the group.
What’s more important is the MAC royalties have been increasing in each quarter over the past year.
Is the Deterra share price a good investment?
Deterra pays most of the royalties it receives back to shareholders as dividends. It paid a 2.45-cents a share fully franked interim dividend in March.
Some might consider the group to be a better way to get exposure to strong iron ore prices. This is because it doesn’t carry operating risks that are associated with other pure mid-tier iron ore miners.
The Deterra share price may also be regarded as a value play. Since it was spun-out of mineral sands miner Iluka Resources Limited (ASX: ILU) in October last year, the Deterra share price has lagged.
Deterra could be poised to outperform from here
The ASX royalties company has dipped around 4% when the BHP share price and Rio Tinto share price are up around 30%. Even its parent, the Iluka share price has surged by 51% since cutting the apron string.
However, history has shown that child entities have a habit of outperforming around six months after finding independence.
That’s around now. The Deterra share price could be on the cusp of a turnaround if history repeats.
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