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anglo pacific group plc

Anglo Pacific Group plc has enjoyed two years of significant growth in income

Julian Treger, Chief Executive Officer of Anglo Pacific, commented: “2017 was a record year for Anglo Pacific with royalty income of GBP37.4m, and total income of GBP42.4m when the cash flows from our Denison transaction are included. This was achieved through a combination of higher commodity prices across our portfolio and a significant increase in mining from within our private royalty area at Kestrel – up from 67% in 2016 to 93% – very much in line with our guidance.

Anglo Pacific has enjoyed two years of significant growth in income and aims to maintain this momentum for future years by acquiring new royalties. With access to over US$50m of liquidity from our balance sheet and a favourable commodity pricing outlook, we believe we are well placed to take advantage of the opportunities to deploy capital in an accretive manner.

Our pipeline is in very good shape and we move forward into 2018 with optimism.”

 

Anglo Pacific Group PLC (LSE:APF) (TSX: APY) this morning announced its full year results for the year ended 31 December 2017 and the publication of its audited 2017 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.

Royalty Income Highlights

 
                          2017           2016    2015 
                          GBPm      %    GBPm    GBPm 
----------------------  ------  -----  ------  ------ 
 Kestrel                  28.8  +119%    13.1     3.6 
----------------------  ------  -----  ------  ------ 
 Narrabri                  4.9   +17%     4.3     3.2 
----------------------  ------  -----  ------  ------ 
 EVBC                      1.7   +42%     1.2     1.3 
----------------------  ------  -----  ------  ------ 
 Maracás Menchen      2.0  +150%     0.8     0.6 
----------------------  ------  -----  ------  ------ 
 Four Mile                   -            0.3       - 
----------------------  ------  -----  ------  ------ 
 Total royalty income 
  *                       37.4   +90%    19.7     8.7 
----------------------  ------  -----  ------  ------ 

* Royalty income does not include income from the Group’s Denison financing arrangement of which GBP5.0m was received in 2017 (GBP1.8m relating to H2 2016)

Financial Highlights

— Record GBP37.4m in royalty income, an increase of 90% on last year (2016: GBP19.7m)

— Free cash flow more than tripled in 2017 to GBP41.5m (2016: GBP13.4m) resulting in free cash flow per share(2) of 23.20p (2016: 7.93p)

— 72% increase in adjusted earnings per share(1) to 16.82p (2016: 9.76p) which excludes non-cash valuation items that do not impact on dividend cover

— 16.7% increase in the total dividend for 2017 to 7p per share (2016: 6p per share) with dividend cover, based on adjusted earnings, of 2.4x (2016: 1.6x)

— Cash of GBP8.1m at 31 December 2017 (31 December 2016: Net debt GBP1.0m) after investing GBP29.4m, paying GBP15.9m dividends and repaying all outstanding borrowings

Operating Highlights

— Strong increase in commodity prices driving the Group’s revenue; noticeably coking coal, thermal coal and vanadium

— Significant increase in sales volumes derived from within our private royalty area at Kestrel – 93% in 2017 compared to 67% in 2016 – with potential to increase ROM production to 5.7mt in the short to medium term

— Higher coal prices compensated for lower sales volumes at Narrabri, leading to an overall increase in revenue

— Record production at Maracás Menchen in 2017 of 9,297 tonnes, a 17% increase from 2016 with a more than doubling of average vanadium prices year on year

— Received GBP5.0m in cash from Denison in line with expectations

— Revenue from EVBC was higher owing to increased production from Orvana, which is continuing to explore possible mine life extension

— The Group acquired a Gross Revenue Royalty interest for the development of the Piaui Nickel Cobalt Project located in north eastern Brazil for an initial US$2m consideration

 

(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. See note 11 to the financial statements for adjusted earnings/(loss).

(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. See note 33 to the financial statements for free cash flow per share.

Analyst presentation

There will be an analyst presentation via conference call at 9:30am (GMT) on 28 March 2018. The presentation will be hosted by Julian Treger (CEO), Kevin Flynn (CFO) and Juan Alvarez (Head of Investments).

Dial in details for the call are as follows:

 
 Location you are dialling in from    Number you should dial 
-----------------------------------  ----------------------- 
 United Kingdom                       0800 640 6441 
-----------------------------------  ----------------------- 
 United Kingdom (Local)               020 3936 2999 
-----------------------------------  ----------------------- 
 All other locations                  +44 (0)20 3936 2999 
-----------------------------------  ----------------------- 

Participant Access Code: 04 17 52 (This must be entered in order for participants to gain access to the conference. Participant’s requested details will then be taken before being placed into the conference.)

About Anglo Pacific

Anglo Pacific Group PLC is a global natural resources royalty and streaming company. The Company’s strategy is to develop a leading international diversified royalty and streaming company with a portfolio centred on base metals and bulk materials, focusing on accelerating income growth through acquiring royalties on projects that are currently cash flow generating or are expected to be within the next 24 months, as well as investment in earlier stage royalties. It is a continuing policy of the Company to pay a substantial portion of these royalties to shareholders as dividends.

This is my first report as Chairman, having assumed the role after the 2017 AGM. Undoubtedly, 2017 has been a year of considerable progress for Anglo Pacific with record royalty revenue, two successful transactions and an increase in the dividend whilst repaying our borrowings in full. We enter 2018 in a very strong financial position and with a very exciting pipeline for growth, which is the clear focus for the year ahead.

Performance in 2017

Our royalty income in 2017 increased by 90% from GBP19.7m to GBP37.4m, continuing the trend of recent years, and representing a record year for the Company. This was primarily due to a significant increase in volumes from Kestrel being subject to the Group’s royalty (93% in 2017 vs 67% in 2016) in addition to higher coal prices. Commodity prices exceeded most commentators’ expectations at the beginning of 2017, with the average price achieved at Kestrel being some 30% higher than the previous year. Thermal coal and vanadium prices were also strong which contributed to the Group’s record performance. We have also enjoyed income from the Denison investment for the first time.

The higher commodity prices and revenues during 2017 translated directly into higher profits and cash generation. Operating profit increased to GBP28.4m from GBP12.7m in 2016. Operating costs also increased in the period due to a combination of higher staff costs and a greater level of investment in business development as we target a higher rate of growth in the coming year.

Our results were, as usual, impacted by a number of revaluation adjustments which led to overall profit before tax being GBP11.8m compared to GBP28.3m in 2016, the decline being driven in the main by the valuation of the Kestrel royalty. Basic and diluted earnings per share were 5.88p compared with 15.60p in 2016. Stripping out these non-cash items, we present an adjusted earnings measure which, we believe, more closely reflects the performance within management’s control. On this basis adjusted earnings per share were 16.82p (2016: 9.76p).

Dividends

In light of the strong results in 2017, and the strength of our dividend cover, the Board has recommended that the final dividend be increased by 1p per share (subject to approval by shareholders at the 2018 AGM), which will result in an overall dividend for the year of 7p per share. We have also increased the level of the interim dividend payments from 1.5p to 1.625p, which will be reflected in the Q1 2018 dividend. We believe that these levels strike the right balance between offering shareholders an attractive dividend yield and retaining sufficient resources to drive the growth strategy.

Focus for 2018

Given the strong financial position that we now enjoy, and the positive outlook for the sector, we are focused on accelerating the growth of our asset base in the coming years. We wish to increase the diversity of our portfolio such that it includes a wider range of commodities and assets, thereby reducing the percentage of our income coming from coal, and Kestrel in particular. We have also announced a desire to build a meaningful presence in commodities which are focused on the growing electric vehicle market, where we see great potential. Our investment in 2017 in the Piauí nickel project is an example of this focus combined with our strategy of looking to add pre-production royalties which will offer high return potential over the years. Our principal objective, however, remains the acquisition of producing or near production royalty and streaming assets

The team continues to be very disciplined in ensuring that acquisitions are of the highest quality in terms of project characteristics both technically and commercially and that we design transaction structures to optimise risk management.

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.