Anglo Pacific Group PLC (LON:APF) has today announced that, together with Orion Mineral Royalty Fund LP – Series 1 and Orion Mineral Royalty Fund LP – Overflow Series 1, it has entered into a financing agreement with Incoa Performance Minerals LLC and certain of its affiliates which will fund the construction of Incoa’s calcium carbonate mine and associated infrastructure in the Dominican Republic as well as a processing facility located in Mobile, Alabama, in the United States of America. Incoa will produce high quality ground calcium carbonate to be marketed principally to the domestic US calcium carbonate market. High quality ground calcium carbonate is used as a functional filler agent in a variety of end-products, including sealants and caulks, adhesives, rubber and as an active ingredient in food and pharmaceutical products which primarily serve to supplement dietary calcium consumption products.
The Financing is structured into two tranches, with Tranche 1 proceeds financing the project through construction and into production. Orion will fund Tranche 1 in full, and Tranche 1 funding is expected to close in Q1 2020.
Anglo Pacific’s US$20 million Tranche 2 commitment follows construction completion when the operation is in production and generating cash flow, and will provide Incoa with additional capital to bring its ground calcium carbonate products to market. The Anglo Pacific Tranche 2 Commitment is subject to a number of conditions, including Incoa’s successful construction and operation of the project. The Anglo Pacific Tranche 2 Commitment is expected to be funded in 2021. Under the terms of the Financing, Anglo Pacific is entitled to receive quarterly payments of approximately 1.23% of Incoa gross revenue following funding of the Anglo Pacific Tranche 2 Commitment.
Anglo Pacific’s participation provides the Company with its first exposure to industrial mineral products and fits into its strategy of investing in high quality products with reduced environmental footprints.
Transaction highlights:
· Further diversified commodity exposure
- Portfolio further diversified to include industrial minerals
- Exposure to a broad range of high-volume products
· Producing royalty at the time of funding
- Anglo Pacific investment to occur after construction is complete and the operation is in production
- Expected to immediately contribute to portfolio cashflow at the time of funding and subsequently ramp-up
· Long mine life with upside potential
- 30+ year Reserve based mine life with potential Resource conversion supporting additional 100+ year life of mine extension
· Attractive cost profile
- The deposit’s high purity and Incoa’s processing design are expected to drive an attractive cost profile
· High quality products with a reduced environmental footprint
- Incoa committed to ESG best practice and to adopt IFC Performance Standards for its non-US operations
- Mining operations not expected to require blasting, hydro metallurgical treatment, onsite beneficiation and tailings storage or to generate significant volumes of waste products
· Experienced management team backed by high quality sponsor
- Management team has a proven track record and includes prior experience at blue-chip industrial mineral producers
- Backed by US-based Peterson Partners, a private equity and venture capital sponsor with a 15-year track record of partnering with entrepreneurs in over 200 companies
Commenting on the investment, Julian Treger, CEO and Executive Director of Anglo Pacific Group, said:
“We are delighted to announce the opportunity to invest US$20 million into the Incoa calcium carbonate project, allowing us to expand our portfolio further to include industrial minerals. The transaction is structured such that funds are only invested when the operation is in production and generating cashflow.
The Incoa project meets many of the Group’s investment criteria, especially in relation to ESG, product quality, long mine life, attractive cost profile and, by the time the funds are invested, the project will be generating cashflow. This will further diversify our portfolio and will continue our trajectory of reduced exposure to coal.
The US$20 million Anglo Pacific Tranche 2 Commitment provides the Group with a proportionate portfolio exposure to the Dominican Republic, an established mining jurisdiction with a number of companies operating high-value assets, the most prominent of which is Barrick Gold’s Pueblo Viejo project which constitutes the largest gold mining project in Latin America.
We are also delighted to continue partnering with Orion following the previously completed Mantos acquisition.”
The Incoa project
Incoa’s calcium carbonate deposit is located in the Dominican Republic and has a 30-year Reserve based mine life with potential Resource conversion supporting a further 100+ year life of mine extension at planned production levels. Incoa will construct and operate a calcium carbonate facility located in Mobile, USA.
After funding the Anglo Pacific Tranche 2 Commitment, the Company anticipates receiving average annual cashflow of approximately US$1.75 – 2.0 million over the first 10 years, and approximately US$2.75 – 3.0 million per annum longer term over the life of the project (in real terms).
Transaction structure
The Financing is structured into two tranches. Tranche 1 is to be funded by Orion in its entirety at transaction close which is expected to occur in Q1 2020. The proceeds of Tranche 1 will be used to fund project construction and to build a sales function in the US. The Anglo Pacific Tranche 2 Commitment is contingent upon Incoa satisfying a number of conditions, including the successful construction and operation of the project. Anglo Pacific has committed to a US$20 million participation in Tranche 2, which the Company expects to fund in 2021.
Under the terms of the Financing, Anglo Pacific is entitled to receive quarterly payments of approximately 1.23% of Incoa gross revenue following funding of the Anglo Pacific Tranche 2 Commitment.
The transaction will be accounted for as an IFRS 9 financial asset with income and valuation movements being recognised in the income statement. Similar to other royalties classified as financial assets, the Company will include the revenue within its calculation of adjusted earnings.
Environmental, social and governance factors
The transaction fits within the Company’s strategy of investing in assets with lower environmental footprints. Incoa’s mining operations are not expected to require blasting, hydro metallurgical treatment, onsite beneficiation and tailings storage or generate significant volumes of waste products.
Anglo Pacific has carried out thorough due diligence in accordance with the Company’s environmental, social and governance (“ESG“) policy and Incoa’s approach towards achieving best ESG practices, which includes compliance with the IFC Performance Standards at its non-US operations to manage environmental and social risks is in line with Anglo Pacific’s policy and procedural requirements. Anglo Pacific will continue to monitor and engage with Incoa to encourage the maintenance of such standards through its audit and information rights available under the terms of the Financing.
Calcium carbonate
Ground calcium carbonate is a widely used industrial mineral. Particle size, colour and chemical purity define the quality of the ground calcium carbonate and the suitability of use for a wide variety of applications. Incoa will produce high quality ground calcium carbonate products suitable for use in a variety of end-markets. High quality ground calcium carbonate is used as a functional filler agent in various end-products, including sealants and caulks, adhesives, rubber and as an active ingredient in food and pharmaceutical products which primarily serve to supplement dietary calcium consumption amongst other end-products.
