Anglo Pacific Group plc (LON:APF) Chief Executive Officer Julian Treger caught up with DirectorsTalk for an exclusive interview to discuss Peel Hunt’s reiterated BUY recommendation, their Kestrel royalty, other commodities they’re exposed to and why investors should back the company.
Q1: We noticed that Peel Hunt reiterated their BUY recommendation, can you explain why this was?
A1: Well, I think there has been potentially a very significant development for Anglo Pacific Group in the last couple of weeks. We’ve become aware that the new owner of our largest asset which is the Kestrel royalty in Australia plans to almost double production from 5.5 million tonnes this year to 10 million tonnes or more, that in turn could have very significant positive implications for our royalty income were that to come about. I think Peel Hunt had noticed this report and reflected that in reiterating their BUY recommendation.
Q2: You talked about the royalty, what does the royalty at Kestrel mine cover?
A2: It covers for the next couple of years, and then at a smaller degree until 2035, the production of coal from the mine and we get a share of the revenues that are sold by the owner. Obviously, if they’re start producing at a much higher rate than they have historically then the income that is due to us will come quicker so that could mean a very significant increase in revenues starting in Q4 this year and obviously for the foreseeable future.
Q3: Do you think that investors should be bullish on coal?
A3: I think they should be because, paradoxically, coal has been such a ‘out of favour’ commodity and what that means that it’s very very difficult to raise money to build new coal mines, but coal is used every day, so the existing mines are depleting constantly, and the production isn’t being replaced. I think that’s part of the explanation for why coal prices have been so high and surprised many analysts for the last couple of years and we don’t see any real systemic reason why that should alter.
Q4: Can you just remind us what other commodities that you’re exposed to?
A4: Coal is a significant part of our portfolio, but we are exposed to a wide range of commodities ranging from iron ore, uranium, some gold, some copper, vanadium which has been doing very well, nickel which used for batteries and recently we did another potentially significant copper royalty which, in due course, could become very large. So, you do get a wide range of exposure through Anglo Pacific.
Q5: As we started, we did mention that Peel Hunt had reiterated their BUY recommendation but why do you think investors should back Anglo Pacific Group?
A5: I think first of all, there’s going to be, if they’re correct, much higher growth and much higher income and as a result, higher dividends, in the coming years than we’d previously expected, this hasn’t been reflected yet, by the way, in any broker forecast so I must reiterate that it’s early days.
As a result, Anglo Pacific trades at a very low rating of both earnings, a very high dividend yield which is well covered and a very low multiple of cash flow, I also believe that the commodities we’re exposed to have a significant upside in terms of price appreciation. So, there’s many positive aspects of the story.