Anglo Pacific Group PLC (LON:APF), the London and Toronto listed royalty company, this morning gave DirectorsTalk a trading update for the period July 1, 2017 to November 9, 2017. Unless otherwise stated, all unaudited financial information is for the quarter ended September 30, 2017.
Julian Treger, Chief Executive Officer of the Company, commented: “Our portfolio has had another strong performance this quarter, generating free cash flows of GBP14.6m. This has enabled us to fund the US$2.0m acquisition of the Brazilian Nickel royalty and repay our borrowings in full, and end the quarter in a net cash position of GBP6.2m.
With continued increases in sales volumes at Kestrel, Narrabri and Maracás Menchen, we expect another strong performance from our portfolio in Q4 2017.”
— Total free cash flow generated of GBP14.6m in Q3 2017 (Q3 2016: GBP4.7m), an increase of 211%
— Total contribution of GBP9.5m in Q3 2017 (Q3 2016: GBP4.7m) comprising:
– Royalty income of GBP8.9m in Q3 2017 (Q3 2016: GBP4.7m), an increase of 89%
– Denison financing receipts of GBP0.6m in Q3 2017
— Increase in royalty income from Q3 2016 mainly due to a 39% increase in average coal price achieved at Kestrel and a 46% increase at Narrabri
— Record production at Maracás Menchen in Q3 2017 which, when combined with a 110% increase in the average vanadium price achieved, resulted in royalty income increasing to GBP0.6m (Q3 2016: GBP0.2m), an increase of 200%
— A return to net cash of GBP6.2m as at September 30, 2017 compared to net debt of GBP0.6m as at June 30, 2017
— Net cash and free cash flow benefited from the commencement of monthly royalty receipts, previously quarterly, from Kestrel following changes to the Queensland royalty regime in Q3 2017, resulting in a one-off benefit to reported cash in 2017
— Completion of the US$2.0m acquisition of a 1% GRR over the Piauí Nickel-Cobalt project which is operated by Brazilian Nickel Limited
— The previously announced 2017 interim dividend of 3.00p to be paid in November 2017
— A further interim dividend of 1.50p in relation to Q3 2017, in line with previous guidance, is declared and will be payable in February 2018
The Group is pleased to report continued strength in the performance of its royalty and investment portfolio in Q3 2017. This has resulted in a doubling of the total contribution and a tripling of free cash flow generated, although the latter has benefitted from certain one off items outlined below.
The total contribution from the Group’s portfolio was GBP9.5m for the quarter, compared to GBP4.7m in Q3 2016. The combination of higher coal and vanadium prices has resulted in an 89% increase in royalty income. The average coal price achieved by Kestrel and Narrabi in the quarter increased by 39% and 46% respectively compared to that of Q3 2016. In addition to the 110% increase in the average vanadium price, the record operational performance at Maracás Menchen resulted in its royalty income increasing to GBP0.6m for the quarter from GBP0.2m in Q3 2016.
We are encouraged by the growth in sales volumes at both Kestrel and Narrabri during the quarter and expect this to continue in Q4 2017. Importantly we continue to expect production from Kestrel to remain largely within our private royalty lands for the rest of the year and throughout 2018.
Total free cash flow generated in the period of GBP14.6m compared with GBP4.7m in Q3 2016, which enabled the Group to repay all of its borrowings. With the Kestrel royalty now being remitted monthly the Group had cash and cash equivalents at September 30, 2017 of GBP6.2m. We expect to remain debt free, absent any acquisitions, despite the additional dividend payment in 2017 and the first deferred consideration payment in relation to Maracás Menchen becoming due. The Group’s revolving credit facility of US$30m remains undrawn and fully available.
In line with the Group’s recently announced dividend payment timetable, the Group’s interim dividend of 3.00p for the year ended December 31, 2017 will be paid on November 15, 2017 and the quarterly dividend for Q3 2017 of 1.50p will be paid on February 15, 2018. As previously stated, the Board will announce the proposed final dividend for the year in the Q4 2017 trading update in February 2018. We will consider the level of the final dividend based on the 2017 full year results, the outlook for commodity prices in 2018 and future investment opportunities for the Group.