Anglo Pacific Group (LON:APF, TSX:APY) has issued the following trading update for the period 1 July to 4 November 2019. Unless otherwise stated, all unaudited financial information is for the quarter ended 30 September 2019.
Highlights
| Q3 2019£m | QoQ % | Q3 2018£m | 9M 2019£m | YoY % | 9M 2018£m | |||
| Kestrel | 7.6 | (4%) | 7.9 | 30.3 | 36% | 22.2 | ||
| Maracás Menchen | 0.5 | (66%) | 1.5 | 2.3 | (36%) | 3.6 | ||
| Narrabri | 1.1 | 37.5% | 0.8 | 3.4 | 48% | 2.3 | ||
| Four Mile | – | – | – | 0.1 | – | 0.1 | ||
| Mantos Blancos | 0.3 | – | 0.3 | – | ||||
| Royalty income | 9.5 | (7%) | 10.2 | 36.4 | 29% | 28.2 | ||
| LIORC dividends | 2.3 | 156% | 0.9 | 5.5 | 450% | 1.0 | ||
| Interest – McClean Lake & Jogjakarta | 0.5 | – | 0.5 | 1.5 | (6%) | 1.6 | ||
| Royalty related revenue | 12.3 | 6% | 11.6 | 43.4 | 41% | 30.8 | ||
| EVBC | 0.6 | 50% | 0.4 | 1.6 | 7% | 1.5 | ||
| Principal repayment – McClean Lake | – | (100%) | 0.1 | 1.0 | 25% | 0.8 | ||
| Total portfolio contribution | 12.9 | 7% | 12.1 | 46.0 | 39% | 33.1 |
- 39% increase in total portfolio contribution1 in the first nine months of the year, growing to £46.0m (nine-month period to 30 September 2018: £33.1m)
- Total portfolio contribution from the Group’s royalty portfolio in Q3 2019 of £12.9m, a 7% increase on the £12.1m reported in Q3 2018
- Reduction in coal and vanadium prices to date in H2 2019 have impacted the Group’s Q3 revenues, but volumes continue to increase, notably at Kestrel where the operator remains on track to achieve its 40% growth target for 2019
- ~US$5m additional investment in LIORC, taking the Group’s total LIORC investment year to date to US$25m
- Previously announced US$50m Mantos Blancos royalty acquisition, brings total investment in the year to date to US$75m – the largest level of growth in the Company’s history
- Net debt of £33.3m at 30 September 2019 following the record level of investment in growth during 2019
- The Group has access to ~US$50m of liquidity and remains on track to deliver strong growth for 2019 as a whole
1 Total portfolio contribution includes royalty income, cashflows from Denison/McClean Lake and other royalty financial instruments accounted for in accordance with IFRS 9, for example El Valle Boinás-Carlés
Trading update
Anglo Pacific has enjoyed ~40% increase in portfolio contribution in the first nine months of the year. This is largely driven by volume growth from its portfolio, notably Kestrel, whilst also earning a very healthy return on its most recent acquisition, LIORC.
Prices which underpin the Group’s royalties were impacted during the third quarter, with notable decreases in both coking and thermal coal, whilst vanadium has returned to the levels we last saw in 2016. Pricing continues to be affected by the Chinese economy, which has been impacted by its ongoing trade dispute with the US. The demand for coal and vanadium imports reduced in the third quarter, and consensus pricing for 2020 now looks lower than it did at the half year, although we note there has been some recovery thus far in Q4.
Despite a lower pricing environment, the volumes underpinning our royalties have grown. The Kestrel operator had targeted 40% volume increase in 2019, and from what we have seen in the first nine months of 2019 it would appear that this target is on track.
Whitehaven has overcome their technical challenges at Narrabri and look set to deliver growth over the coming years with an initial target of 6.5mtpa – the operation is permitted for 11mtpa.
We were also pleased to see that Largo Resources completed their modifications to the plant at Maracás Menchen and we would expect to see volumes increase during Q4 as they move towards their target of increasing volumes by 20% in the short-term.
Our initial investment in LIORC in 2018 proved timely and is now our second largest source of revenue. We took the opportunity presented by the global equity sell off in the middle of 2019 to increase our investment as the price retraced to a level within our investment range. We have now invested US$75m in this asset, which has yielded more than 15% in dividends in 2019 thus far.
The Group continued towards its growth objectives by completing US$75m of acquisitions so far this year. This has once again been financed entirely from the Group’s balance sheet and brings the total acquisitions made over the last 18 months to US$125m without raising equity.
The economic backdrop continues to present opportunities to acquire further royalties and streams, which remains the firm focus of the Group going forward. With access to ~US$50m of liquidity, we remain in a strong position to take advantage of these opportunities.
Julian Treger, Chief Executive Officer of the Company, commented:
“With the income we have earned year to date, along with our expectation for strong volumes to come in the fourth quarter, we would expect 2019 to be another record year of revenue for the Group. With US$75m of acquisitions year to date, 2019 will be a record year of investment for Anglo Pacific. This is very much in line with our objectives at the beginning of the year to continue and accelerate our level of growth.
The recent weakness in certain commodity prices combined with the impact of continued ongoing global economic uncertainty, not least the US China trade tension, should continue to provide investment opportunities for Anglo Pacific, and we see this currently in our pipeline. We have the financial capacity to do more and remain firmly focused on growth, but this will not be at the expense of our strict investment criteria which have served us well over the past number of years.”
