LSE- and TSX-listed Anglo Pacific on Thursday announced that it had acquired a 4.25% shareholding in Labrador Iron Ore Royalty (LIORC) for $50-million, an investment that the company said should be immediately value accretive.
LIORC, which is listed on the TSX and has a market capitalisation of about C$1.5-billion is structured as a passive flow-through entity for a 7% gross revenue royalty (GRR) and a C$0.10/t commission on all iron-ore products sold by Iron Ore Company of Canada (IOC).
In addition, LIORC has a 15.1% equity position in IOC, which is operated by Rio Tinto and owns mining and processing operations in the area of Labrador City.
Anglo Pacific said that the investment would be an attractive addition to its portfolio, providing exposure to the premium end of the iron-ore concentrate and high-margin pellet markets.
“The transaction is expected to be immediately accretive to adjusted earnings and free cash flow per share, and based on Anglo Pacific's current shareholding and LIORC broker consensus 2019 dividend forecasts, the company expects to receive between C$4.7-million to C$5.7-million of royalty related revenue during the 2019 calendar year via LIORC dividends,” said Anglo Pacific CEO Julian Treger.
Anglo Pacific will report LIORC dividends received, which are funded by the 7% GRR receipts proceeds and IOC dividends paid to LIORC, as royalty related revenue.
The IOC, which Rio Tinto is said to be keen to sell or list separately, is a top five global producer of seaborne iron-ore pellets and has a reserve based mine-life of more than two decades.
“This investment ticks the boxes of our royalty investment criteria, and positions Anglo Pacific to benefit from the positive outlook for high quality iron-ore products, as well as from pellet premiums which we expect to remain elevated in the near-term," Treger said.
Anglo Pacific gained 2.4% in London to trade at £1.28 a share by 10:00 local time.