Deterra Royalties Ltd (ASX: DRR) shares are changing hands for $3.66 apiece on Thursday, up 0.41%.
Top broker Macquarie has just issued a note about Australia's critical minerals, including its forecasts for Deterra Royalties shares.
Let's take a look.
What is Deterra Royalties?
Deterra Royalties shares are a little different to typical ASX mining stocks.
Deterra manages a portfolio of 28 royalties and royalty-like offtake assets in 11 countries and involves six commodity types.
It is Australia's first listed mining royalty investment company of scale.
Mining royalties are agreements that provide a miner with a one-time payment in exchange for a share of future revenues.
Deterra either buys royalties from third parties or provides finance to mining companies in exchange for ongoing royalty payments.
Deterra's biggest royalty asset is Mining Area C (MAC) in the Pilbara region, which is operated by BHP Group Ltd (ASX: BHP).
Deterra Royalties also holds royalty assets in the base and battery metals commodities of mineral sands, copper, lithium, gold, and silver.
These are future-facing commodities used in technology and the green energy transition.
The company says the biggest benefit of investing in mining royalties over mining companies is lower capital and operating risks.
Will Deterra Royalties shares rise or fall over the next year?
Macquarie is bullish on Deterra Royalties shares.
It has an outperforming rating on the mining stock with a 12-month price target of $4.40.
This implies a potential 20% upside.
In a new note, the broker took into account the 3Q FY25 update from Deterra Royalties, which was released on 30 April.
The update prompted Macquarie to cut its earnings per share (EPS) forecast for FY25 by 2%. But it left its price target unchanged.
Macquarie commented:
Production at MAC was solid in the March quarter reflecting continued supply chain performance, which translated to record volume delivered from the Central Pilbara hub (South Flank and Mining Area C).
DRR reported MAC revenue of A$55.6m in the period, which was further boosted by gold offtake margin of A$5.6m.
The company has commented that Thacker Pass construction remained underway with first production targeted in CY27. Our base case has assumed first production in the 3QCY27.
Macquarie said the main risk to its outlook on Deterra Royalties shares is movements in the iron ore price.
Movements in iron ore prices that vary compared with our forecasts present the key risk to our earnings estimates and valuation for DRR.
Any value accretive royalty acquisitions present key risks to earnings forecast and valuation.
