Anglo Pacific Group Mantos Blancos royalty acquisition

Anglo Pacific Group PLC (LON:APF) has today announced that it has entered into an agreement with a subsidiary of Mantos Copper, to acquire a 1.525% Net Smelter Return royalty over all copper produced at the Mantos Blancos copper mine in exchange for an upfront cash consideration of US$50.25 million. Anglo Pacific is entitled to royalty payments on completion of the acquisition, which is expected to occur within two business days of this announcement. The Mantos Blancos Mine is an open pit operation located in Chile, producing copper with silver by-products. The NSR entitlement applies exclusively to copper production at the Mantos Blancos Mine.

The acquisition of the NSR provides Anglo Pacific with its first significant exposure to a producing copper mine at an attractive entry point in the copper price cycle and will immediately add diversification to the Company’s portfolio. The transaction also fits into the Company’s strategy of investing in high quality commodities with smaller environmental footprints, as the Mantos Blancos Mine produces products at the premium end of the copper market. The royalty will generate immediate cashflow following completion and will be financed entirely from internal resources, which will be accretive to earnings per share (“EPS”).

Anglo Pacific has carried out thorough due diligence in accordance with the Company’s environmental, social and governance (“ESG”) policies and is supportive of Mantos’ approach towards achieving best ESG practices. Anglo Pacific will continue to monitor and work with Mantos to maintain such standards through its audit and information rights available under the terms of the royalty agreement.

Highlights of the transaction:

• Enhanced commodity mix with exposure to the highly attractive copper market outlook
  • Portfolio further diversified to include a producing copper royalty
  • Global copper supply currently in a deficit position which is forecast to widen further
• Immediately accretive and maintains low-risk geographic footprint
  • Producing royalty immediately accretive to EPS and cashflow per share following completion
  • Chile ranks amongst the top six most attractive global jurisdictions for mining investment ⁽¹⁾
• Mantos Blancos Mine produces high-quality copper products
  • High grade copper concentrates with low levels of deleterious materials
  • Cathode products are primarily Grade A with 99.99% purity and are LME registered
• Long production track record and long mine life with upside potential
  • One of the first private copper mines in Chile with demonstrated ability to operate through the cycle
  • 16 year mine life at planned production rates with production and mine life extension upside
  • Production upside potential via a further concentrator plant expansion and treatment of oxide ore stockpiles
• High quality management team
  • Proven operational track record at Chilean and South American copper mines
  • Prior experience at blue-chip miners including Anglo American, BHP, Codelco, and Barrick South America
• Demonstrates Anglo Pacific’s ability to finance transactions from its balance sheet
  • ~US$112 million in balance sheet financed acquisitions over the past 12-months

Mantos will direct the proceeds of the royalty transaction to fund the Mantos Blancos concentrator de-bottlenecking project capital costs of US$219 million (the “Debottlenecking Project”) as well as any working capital requirements which arise as a result of its implementation. The Debottlenecking Project is expected to increase the Mantos Blancos Mine’s sulphide ore concentrator plant throughput capacity to 7.3Mtpa by 2021 from 4.3Mtpa currently, prior to the expected depletion of the oxide ore in 2023, and is expected to extend the mine life to at least 2035 at reduced cash costs. The mine is expected to produce 45.4 Kt and 42.3 Kt of copper in 2019 and 2020 respectively and an average of 52.4 Kt of copper per annum during the first ten years following the completion of the Debottlenecking Project in 2021 at an average C1 cash cost of $1.87 per pound (including silver by-product credits). The mine has both production upside and mine life extension potential.

Concurrent with Anglo Pacific’s royalty acquisition, Mantos has entered into a US$250 million financing package including a US$150 million offtake facility with Complejo Metalurgico Altonorte S.A., and a US$25 million agreement with a subsidiary of Osisko Gold Royalties Ltd (“Osisko”) to upsize an existing silver stream agreement. Together with US$25 million of committed equity funding from Mantos’ majority shareholder Orion Mine Finance LLP, the combined proceeds will fund US$219 million of capital costs and working capital associated with the Debottlenecking Project. Anglo Pacific’s position as a secured creditor to Mantos is regulated pursuant to an intercreditor agreement between Complejo Metalurgico Altonorte and Osisko.

The Mantos Blancos royalty will be immediately accretive to the Company’s H2-2019 EPS. The transaction has largely been funded by a US$50 million drawdown of the Company’s revolving credit facility.

Julian Treger, CEO and Director of Anglo Pacific is a Non-Executive Director of Mantos. Mantos is majority owned by Orion Mine Finance LLP. Audley Mining Advisors Limited (“AMAL”) is a minority shareholder of Mantos with an approximate 4% holding. Mr. Treger is a potential beneficiary in a trust which is a shareholder of AMAL. Although the transaction is not a related party transaction under the Listing Rules, as a result of Mr. Treger’s connection with Mantos and in accordance with the Company’s internal procedures on conflicts of interest, Mr. Treger did not take part in the day-to-day negotiations relating to the transaction and abstained from voting at both Boards on matters relating to the transaction.

Commenting on the investment, Patrick Meier, Non-Executive Chairman of Anglo Pacific Group, said:

“The Mantos Blancos royalty acquisition continues Anglo Pacific’s growth trajectory; it is expected to be immediately accretive to earnings and is in-line with our stated strategy of diversifying the Company’s sources of income and commodity exposure.

In addition to being located in an excellent mining jurisdiction, the Mantos Blancos Mine produces a clean concentrate with very low levels of impurities and deleterious materials, further enhancing the Company’s exposure to premium commodity products.

The bear market for commodities in the 2012-2016 period resulted in underinvestment by the capital-constrained mining sector into sources of new copper supply. Looking ahead, negligible supply growth and declining copper grades at existing operations are expected to drive a structural supply deficit based on industrial demand sources alone, with incremental copper demand resulting from new renewable energy power generation capacity, energy storage, and electric vehicle sales growth expected to create an even tighter supply environment.”

Analyst Call

There will be an analyst conference call at 1:00pm (BST) on 2 September 2019. The call will be hosted by Julian Treger (CEO), Marc Bishop Lafleche (Head of Development), and Juan Alvarez (Head of Investments).

Dial in details for the call are as follows:

All other locations please refer to the link below:http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf

Participant Access Code: 42643335# 
Presentation link: https://www.anglopacificgroup.com/wp-content/uploads/2019/08/Anglo-Pacific-Group-Mantos-Blancos-Royalty-Acquisition.pdf