Anglo Pacific Group PLC (LON:APF) has today announced its full year results for the year ended 31 December 2019, representing a record year for income. The Company has also published its audited 2019 Annual Report and Accounts, which 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.
Background
We are presenting this set of full year results amid the unprecedented global humanitarian and economic crisis caused by the COVID-19 pandemic. Along with the rest of the business community, we are focused on securing the safety of our employees and are mindful of the economic impact that we are likely to experience in the coming months.
Whilst it is very difficult to make forward looking statements or predictions with any great certainty, we believe that the impact of COVID-19 will be a temporary disruption and will ultimately pass. In the meantime, we have stress tested our business model to assess what the impact would be under several downside scenarios. Overall, we consider that Anglo Pacific is well positioned to withstand the challenges ahead, given the strength of our financial position and the diversity of our royalty portfolio.
2019 Portfolio Highlights
| 2019£m | YoY% | 2018£m | 2017£m | 2016£m | 2015£m | |
| Kestrel | 37.0 | 13.5% | 32.6 | 28.8 | 13.1 | 3.6 |
| Maracás Menchen | 2.8 | (52.5%) | 5.9 | 2.0 | 0.8 | 0.6 |
| Narrabri | 4.0 | 14.3% | 3.5 | 4.9 | 4.3 | 3.2 |
| Mantos Blancos | 1.0 | – | – | – | – | |
| Four Mile | 0.3 | 0.1 | – | 0.3 | – | |
| EVBC* | – | – | 1.7 | 1.2 | 1.3 | |
| Royalty income | 45.1 | 7.1% | 42.1 | 37.4 | 19.7 | 8.7 |
| Dividends – LIORC and Flowstream | 8.7 | 1.9 | – | – | – | |
| Interest – McClean Lake & Jogjakarta | 1.9 | (9.5%) | 2.1 | 2.2 | 0.3 | 0.2 |
| Royalty related revenue | 55.7 | 20.8% | 46.1 | 39.6 | 20.0 | 8.9 |
| EVBC* | 2.2 | 10% | 2.0 | – | – | – |
| Principal repayment – McClean Lake** | 1.6 | 23% | 1.3 | 3.0 | – | – |
| Total portfolio contribution | 59.5 | 20.4% | 49.4 | 42.6 | 20.0 | 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 £55.7m in royalty related revenue, an increase of 21% on the previous record of £46.1m earned in 2018 driven by a strong performance at Kestrel
- Total portfolio contribution increased by 20% to £59.5m, or ~US$75m
- 21% increase in operating profit to £44.8m (2018: £37.1m) despite continued investment in the business which saw operating expenses rise to £7.1m
- Profit after tax, which includes valuation and impairment charges, in line with previous year of £29.0m resulting in basic earnings per share of 16.06p (2018: £28.8m and 15.97p)
- 13% increase in adjusted earnings1 per share to 20.41p (2018: 18.02p)
- Net debt at the year-end of £28.8m (2018: net cash £3.1m) reflecting the £62.6m of acquisitions made during the year along with £14.4m of dividend payments
- Recently announced refinancing of the Group’s borrowing facility to increase commitments from US$60m to US$90m, the retention of a US$30m accordion option and a twelve-month extension
Dividend update based on record performance and investment in 2019
- Recommended 32% increase in the final dividend for 2019 to 4.125p, which is in line with previous guidance. If approved at the 2020 AGM, it will be paid shortly thereafter
- Along with the 4.875p of interim dividends already paid in respect of 2019, the final dividend would bring the total dividend for 2019 to 9.00p, a 12.5% increase on that of 2018
- The Company will no longer be holding its 2020 Annual General Meeting on 11 May 2020 as originally intended given the current circumstances surrounding COVID-19. We are currently working to ensure that our 2020 AGM can be held as soon as reasonably practical and a separate announcement will be made shortly confirming the new AGM date, as well as a revised record and payment date for the final dividend
Operating Highlights
- US$75m (£62.6m) of income producing royalties acquired during 2019, a record level of investment and financed from the Group’s balance sheet
- Kestrel operator achieved a 42% increase in saleable coal production, exceeding its 40% target, resulting in a record year of royalty income for the Group
- Income of £8.0m from LIORC was the Group’s second largest source of revenue and, based on the investment made in 2018 represented a 16% yield in 2019
- Record production levels achieved at Maracas Menchen, with the expansion plan on track although the significant decrease in the vanadium price impacted revenue
- Post period-end, US$20m financing agreement entered into with Incoa Performance Minerals, diversifying our portfolio into industrial minerals
Outlook
- Refined investment strategy recently announced, with the Group committing to no further investment in thermal coal
- Further volume growth expected from the portfolio in 2020 subject to any impact of COVID-19 on business operations
- Kestrel owners are targeting a further 6.5% increase in saleable coal production in 2020
- Maracas operator is targeting further growth in 2020 following the completion of its plant expansion project in H2 2019
- Full year of revenue to come from the Group’s Mantos Blancos royalty (only four months included in 2019)
- Further £5.7m LIORC addition in Q1 2020, representing the reinvestment of dividend income, taking our total stake to 7% and providing further source of revenue for 2020
- In excess of £60m (~US$75m) of available liquidity under the refinanced borrowing facility to finance growth opportunities
COVID-19 update
- Business as usual for Anglo Pacific with all staff members working remotely and investment opportunities being pursued
- No operational restrictions in force at Kestrel at the time of writing
- EVBC and McClean Lake have announced short-term shutdowns of two and four weeks respectively – based on 2019 results this would have represented 1% of portfolio contribution
- IOC has temporarily halted production of two (out of six) pellet machines in response to a slowdown in demand for pellets, adjusting production to meet increased demand for 65% Fe concentrate. In addition, the Quebec government has directed a reduction in activities from the port where the product is shipped to a minimum. The potential impact of these measures on sales prices and volumes is unclear at this time
- Spot prices of the commodities which underpin the Group’s revenues have held up well thus far in 2020
- Currencies have remained volatile following unprecedented Government and Central Bank intervention, but at present the impact of a weakening Australian dollar has positive implications for the Kestrel weighted average royalty rate (assuming constant coal prices)
- Effective hedging program in place during 2019 which will benefit 2020 cashflow with ~A$33m contracted forward in 2020 at an average rate of GBP:AUD of 1.86 vs spot of 2.02
Julian Treger, Chief Executive Officer of Anglo Pacific, commented:
“Anglo Pacific enjoyed a very successful 2019, with a record level of investment and portfolio contribution. We are pleased to recommend a full year dividend for the year of 9p, consistent with our previous statement that it would not be less than this level despite the ongoing and ever evolving market turmoil. This means that we are proposing a final dividend of 4.125p, a 32% increase on the 2018 final dividend. At the current share price the dividend, which is over 2.3x covered, represents a very healthy income yield.
The most material mines from which we generate the majority of our revenue remain in production and are able to ship and sell. We have seen some instances of COVID-19 related shutdowns at EVBC and McClean Lake which are currently expected to last for between two to four weeks. We would expect to see production volume growth in the year ahead absent any further shutdowns.
Market conditions are very challenging for conventional mining finance, and this will see the environment for raising capital becoming much more difficult and perhaps prohibitively expensive. This should increase the demand for alternative financing, and we will look to prudently put capital to work, financed from our recently upsized revolving credit facility.
We at Anglo Pacific look long-term in respect of our strategy and strongly believe that climate change is an important issue facing the planet. The mining industry will be part of the climate change solution, providing the commodities needed to implement the technology which will allow the world to reduce dependence on fossil- based energy. We have aligned our investment focus accordingly and have committed not to increase our exposure to thermal coal through any new investment.
Our business remains in sound financial health, with leverage ratios of less than 0.7x, no material capital commitments, and debt maturity extended for a further twelve months to September 2022. We remain focused on growing our business 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.
Analyst and Investor presentation
There will be an analyst and investor presentation via conference call and webcast at 9:30am (GMT) on 07 April 2020. The presentation will be hosted by Julian Treger (CEO), Kevin Flynn (CFO) and Juan Alvarez (Head of Investments).
Please join the event 5-10 minutes prior to scheduled start time. When prompted, provide the confirmation code or event title
