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Anglo Pacific Group PLC

Anglo Pacific Group PLC Record £46.1m in royalty related revenue, an increase of 16%

Anglo Pacific Group PLC  (LON: APF) (TSX: APY) is pleased to announce its full year results for the year ended 31 December 2018 and the publication of its audited 2018 Annual Report and Accounts. These are available on the Group’s website at www.anglopacificgroup.com and on SEDAR at www.SEDAR.com. The following statement should be read in conjunction with the audited financial statements.

Portfolio Highlights

2018

£m

 

YOY %

2017

£m

2016

£m

2015

£m

Kestrel

32.6

13%

28.8

13.1

3.6

Maracás Menchen

5.9

195%

2.0

0.8

0.6

Narrabri

3.5

(29%)

4.9

4.3

3.2

Four Mile

0.1

0.3

EVBC*

1.7

1.2

1.3

Royalty income

42.1

13%

37.4

19.7

LIORC dividends

1.9

Interest – McClean Lake & Jogjakarta

2.1

(4%)

2.2

0.2

0.2

Royalty related revenue

46.1

16%

39.6

19.9

8.9

EVBC*

2.0

Principal repayment – McClean Lake**

1.3

3.0

Total portfolio contribution

49.4

16%

42.6

19.7

8.9

 

* Following the application of IFRS 9, the royalties received from EVBC are reflected in the fair value movement of the underlying royalty rather than recorded as royalty income.

** The McClean Lake principal repayment in 2017 included £1.8m relating to tolling receipts from H2 2016

Financial Highlights

§ Record £46.1m in royalty related revenue, an increase of 16% on the previous record of £39.6m earned in 2017

§ Overheads (excluding share-based payments) in line with 2017

§ 21% increase in operating profit to £37.1m (2017: £30.6m)

§ Tax losses utilised in full during H1 2018 resulting in an effective tax rate for the year of 25% (2017: 9%) based on adjusted earnings

§ 7% increase in adjusted earnings1 per share to 18.02p (2017: 16.82p)

§ 14% increase in proposed total dividend for the year to 8p per share (2017: 7p)

§ Dividend cover of 2.25x (2017: 2.4x) – reflecting the higher dividend for 2018

§ Free cash flow2 per share of 22.28p, largely in line with the 23.62p generated in 2017

§ Net assets largely unchanged at £218m (2017: £219m)

§ Net debt at the year-end of £3.1m (2017: net cash £8.1m) reflecting the £38.4m LIORC acquisition completed in H2 2018 and £12.9m dividends paid

§ Returned to a net cash position at the end of January 2019

Operating Highlights

§ 13% increase in royalty income from Kestrel reflected strength of coal prices as volumes attributable to our private royalty land were stable at 4.8Mt

§ Maracás Menchen became the Group’s second largest source of revenue in 2018, following a significant increase in the vanadium price during H2 2018

§ Maiden contribution of £1.9m from Labrador Iron Ore Royalty Corp (“LIORC”) which was acquired in H2 2018, implies a yield of ~10%

§ £38.4m LIORC acquisition undertaken in H2 2018, financed through available bank facilities

§ Refinanced and upsized the previous US$30m borrowing facility with a new US$60m facility which includes a further US$30m accordion feature providing the Group with bank facilities of up to US$90m for acquisitions

Growth

§ Significant volume growth expected from Kestrel following the recent announcement by Adaro indicating a target increase in volume of 40% in 2019

§ Further £1m investment in LIORC in January 2019, taking our total ownership in LIORC to 4.4%, total investment to C$67.9m with a current market value of C$82.1m

§ Q1 2019 dividend from LIORC of C$1.05 per share, which included a C$0.80 per share special dividend, following the distribution of excess cash retained during H2 2018

§ ~£78m (~US$100m) of available bank facilities and cash available to finance growth

Julian Treger, Chief Executive Officer of Anglo Pacific, commented:

“2018 was the second year in a row in which we reported record contribution from our royalty portfolio, and the recent announcement from Adaro suggests that there is a significant increase in volume to come at Kestrel in 2019. This led us to propose a 14% increase in the total dividend for 2018 to 8p.

I am particularly pleased to highlight the contribution from Maracás, now our second largest royalty, and LIORC, our most recent addition, which demonstrates the progress we have been making in building a diversified portfolio whilst reducing our dependence on the Kestrel royalty. LIORC generated £1.9m in royalty related income since its acquisition in H2 2018, implying an annualised yield of ~10%.

Based on 2018 revenue, we have now successfully increased revenues by approximately £15m annually over the last four years. We have also systematically strengthened the balance sheet, senior management and the Board which together provides the Company with added firepower to grow and execute accretive transactions. This is good progress, but we have more to do and our target for 2019 is accelerating the rate of our growth.

Growth will not, however, come at the expense of quality, diligence and prudence in the projects we choose to support. To this extent, we will continue to focus on projects which produce premium materials, which we believe will continue to command a higher premium over time.

In addition to product quality, we will also maintain a strict focus on how the projects are operated and managed from an ESG perspective and we will only support those projects which are being run ethically and responsibly. Our annual report contains further information in relation to our initiatives in this area during 2018 and how we see this evolving in the years ahead. Although Anglo Pacific is not an operator, our investments are in natural resources projects, and we continue to believe in the ongoing need for high-quality, low polluting products which are operated in a responsible manner by experienced management teams.

The backdrop for raising capital for natural resources companies continues to be challenging given the scarcity of capital in the sector, however we feel confident that we can continue to make investments and grow our portfolio in a meaningful way in 2019. With the owners of Kestrel targeting a 40% increase in volume in 2019, along with having access to ~£78m (~US$100m) of liquidity on our balance sheet for making additional quality investments, we are in a very strong position from which to grow in the year ahead.”

1 Adjusted earnings/(loss) represents the Group’s underlying operating performance from core activities. Adjusted earnings/(loss) is the profit/(loss) attributable to equity holders less all valuation movements, non-cash impairments and amortisation charges (which are non-cash IFRS adjustments that arise primarily due to changes in commodity prices), finance costs, any associated deferred tax and any profit or loss on non-core asset disposals as these are not expected to be ongoing.

2 Free cash flow is the net increase/(decrease) in cash and cash equivalents prior to core acquisitions, equity raising and changes in the level of borrowings.

Outlook

Anglo Pacific made significant progress in 2018, which lays the foundations to fund further growth. In 2019, we have a firm expectation to generate organic growth from the Company’s royalty portfolio which should, subject to prevailing commodity prices, result in strong earnings and cash generation. We continue to see traditional capital finance for new mining projects remaining constrained in current markets, and, whilst this presents challenges for small to medium sized miners, this conversely presents increasing opportunities and demand for royalties. This should provide Anglo Pacific with opportunities to add attractive assets to its portfolio. Growth and delivering value remain a focus for the Company in 2019 and the years following.

Analyst and Investor presentation

There will be an analyst and investor presentation via conference call and webcast at 9:30am (GMT) on 27 March 2018. The presentation will be hosted by Julian Treger (CEO), Kevin Flynn (CFO) and Juan Alvarez (Head of Investments).