TORONTO (miningweekly.com) – TSX- and LSE-listed Anglo Pacific Group more than doubled revenues in 2015 to swing to an adjusted profit driven mainly by the group’s Australia-based coking and thermal coal assets.
The UK-based company on Wednesday reported that royalty income had increased 149% to £8.7-million, driven by a strong increase in output at Narrabri and mining at the Kestrel operation.
The adjusted earnings grew by £6.2-million to £4-million, or 2.47p, while Anglo posted a loss after tax of £22.6-million, or 14.06p. This was mainly attributable to a £27-million revaluation charge against Kestrel.
The company was repaid a £2.9-million loan owed by Laramide Resources, resulting in a £5.7-million cash balance at the year end and net debt of £1.8-million.
GROWTH PROSPECTS
The company was looking forward to significant growth from its existing portfolio, Anglo Pacific CEO Julian Treger noted in an interview with Mining Weekly Online.
Last year at Kestrel, about 49% of production was from under Anglo Pacific’s royalty lands, increasing to 65% this year, and going up to more than 90% in 2017, which was expected to drive sharp income growth from the royalty over the coming years.
The company, which made its money from mining royalty and finance deals centred on base metals and bulk materials, also had significant organic growth prospects from the portfolio as commodity prices recovered.
“For instance, it looks like coking coal (which accounted for about 54% of the company's commodity exposure) might see its first positive quarterly price movement since 2013,” he pointed out, noting that it was a matter of seeing whether the modest price rallies across all commodities so far this year would be sustained.
Meanwhile, the company booked revenue from new royalty streams, after Quasar Resources made its first uranium sales from its Four Mile uranium mine, in Southern Australia.
Treger noted that there was also a broader opportunity for the company to do new things, given the favourable backdrop of limited financing availability to the mining sector, as banks reduced their risk exposure.
“Royalty streams can step up to the plate at the moment – we’ve seen much higher activity in the second half of last year, and what is interesting to us, is that the cost of those royalties seem to have gone up,” he noted.
Treger pointed to the recent $500-million Glencore deal with Franco Nevada, which according to him seems to have been closed at a higher rate than seen in other previous deals.
“This means that the higher returns that Anglo Pacific wants as a requirement for putting new money to work in the royalty space is more realistic and achievable now.”
The company is focused on its strategy to build a diversified portfolio of royalties, focusing on accelerating income growth through acquiring royalties in cash producing or near-term cash producing assets.
Further, Treger stressed that he saw a “generational” opportunity presented by the stress the majors were dealing with on their balance sheets. “A few years ago, it would have been impossible to engage with the majors regarding royalties on their high-quality assets, but today, because they need to destress their balance sheets, there is the opportunity to assist them in that the royalties opportunities would be considered as ‘off balance sheet’,” he advised.
DIVIDEND YIELD
Treger said Anglo Pacific traded at a high dividend yield compared with its peers in Toronto, and also at a big discount to its net asset value, which was calculated at a much higher yield than the precious metals royalties businesses. Anglo’s net assets at year-end were worth £162-million, more than its market capitalisation, which currently stood at £118-million.
“This does not include a lot of value in the portfolio because we carry assets at the lower of value or cost, which is being amortised, so there is a lot of value in our portfolio that isn’t declared. But even on the declared assets we are trading very cheaply,” he explained.
Investors will receive a final dividend of 3p a share, totalling 7p for the year – a dividend yield of more than 10% higher than the company’s precious metals peers such as Franco Nevada or Silver Wheaton, with yields of between 1% and 2%, Treger said.
“The indiscriminate selling which has affected commodity stocks has also impacted our share price, to an extent that we trade well below our net asset value per share and at a very high dividend yield. Ordinarily such a yield would suggest to the market a further dividend cut.
“However, following our announcement on January 28, in which we outlined a revision to our dividend policy, we have now made the cuts we believe are necessary to protect our balance sheet, subject to ongoing market conditions being relatively stable,” he said.
The company retained its target of paying dividends of at least 65% of adjusted earnings in the longer term, with a medium-term minimum yearly dividend of 6p a share.