Anglo Pacific release 2020 results

Financial highlights

• Results reflect lower production levels from Kestrel compared to the record level produced in 2019. 2020 volumes were 11% lower at 5.8 million t which are expected to be the level the operators are targeting in the near-term.
• Coal prices were significantly impacted by the closure of Indian ports for a period in mid-2020 as a measure to contain the outbreak of COVID-19.
• Royalty income reflects a US$1.3 million charge at Maracás Menchen due to monies owed to Glencore upon the termination of its offtake agreement.
• £34 million in royalty related revenue (2019: £55.7 million).
• Total portfolio contribution of £37 million (2019: £59.5 million).
• Operating profit of £22.1 million (2019: £44.8 million).
• Loss after tax, which includes valuation and impairment charges, of £18.6 million (2019: profit after tax £29 million) which reflects a £44.2 million valuation charge against Kestrel and impairments of £3.4 million.
• Basic loss per share of 10.31 p (2019: earnings of 16.06 p).
• Adjusted earnings1 per share of 12.35 p (2019: 20.41 p).
• Net debt at the year-end of £24.3 million (2019: £28.8 million) benefitting from the £15.2 million of LIORC disposals made in December 2020, at a profit of £1.9 million, in preparation for the financing of the Voisey’s Bay stream acquisition.
• Kestrel represented 17% of the group’s royalty assets on the balance sheet (2019: 26%) expected to reduce further to 12% upon the acquisition of the Voisey’s Bay cobalt stream in March 2021.

Operating highlights.

• Minimal operational disruption caused by COVID-19 during 2020 across the company’s portfolio.
• Kestrel operator reduced production from its record levels in 2019, with production expected to be maintained at these levels in 2021.
• Record sales achieved at Maracás Menchen in 4Q20 and further growth expected in 2021 following plant expansion and targeted biproduct sales.
• Another strong performance from LIORC with total dividends for 2020 of CAN$3.05 (2019: CAN$4.00) despite planned capex investment at the underlying operation impacting the special dividend in 2020.
• 10% decrease in operating expenses to £6.4 million in 2020 despite increased costs associated with the Four Mile legal dispute. In relation to the latter, the company is hopeful that there will be some tangible progress made to this case over the coming months.

Investment highlights

• US$205 million acquisition of the Voisey’s Bay cobalt stream completed in March 2021, the group’s largest and most significant transaction, setting Anglo Pacific on the road to become the leading growth royalty and streaming company, focused on base and battery metals.
• US$20 million financing agreement entered into with Incoa Performance Minerals, financing conditional upon operational milestones being achieved – could be invested as early as 4Q21.
• US$2 million further investment into Brazilian Nickel as part of the investment by the US government into a wider financing to advance this significant development project.
• Given the implied undervaluation of the business, a £5 million share buyback program was undertaken and completed in November 2020 at an average price of £1.09 providing an immediate return to shareholders.
• £4 million of non-core asset disposals, mainly Berkeley Energia and Horizonte Minerals shares, to majority finance the share buyback.
• £5.7m reinvested in LIORC in 1Q20 which yielded 14% on investment throughout 2020, and £15.2 million LIORC disposal in December 2020, generating a profit of £1.9 million.
• £47.4 million further LIORC disposals in 1Q21 as part of the Voisey’s Bay financing, resulting in total disposals of £62.6 million which generated an overall return on investment of 60%.

Outlook

• The outlook for most commodities looks favourable for the near-term with increased government investment likely globally as a fiscal response to COVID-19.
• The Voisey’s Bay transaction is expected to significantly alter the group’s revenue profile composition in 2021.
• The group’s exposure to base metals has increased to over 60% following the Voisey’s Bay transaction, with the outlook for base and battery metals looking favourable for the year ahead.
• Kestrel volumes are expected to remain at similar overall levels in 2021, although the gradual reduction of the percentage of production sourced from within the group’s private royalty land is expected to commence in 2H21.
• Maracás Menchen operator targeting increased activity in the year ahead with increased premium vanadium product sales being targeted and the sale of bi-products now underway.
• The group has an active pipeline and financial flexibility to continue to add to its high quality royalty and streaming portfolio.

Julian Treger, CEO of Anglo Pacific, commented: “Anglo Pacific is a very different business to what I reported on this time 12 months ago. We have, with the Voisey’s Bay cobalt stream acquisition, fundamentally repositioned our portfolio towards materials vital in providing cleaner energy for the future whilst ensuring that the group replaces its Kestrel revenue ahead of time. This is immediately evident on our balance sheet where these materials now account for over 60% of our royalty and streaming assets.

“Operationally, our portfolio has performed well during the year considering the challenges presented to the industry by COVID-19, demonstrating the quality of the investment projects. The reduction in our royalty revenue during 2020 to £34 million, however, highlighted how important it was to act decisively to reduce our dependence on one single asset and commodity. The coal markets, coking coal in particular, had a turbulent year caused in large part by the closure of Indian ports and the knock-on impact of an over supplied seaborne market. Although prices recovered somewhat in early 2021, prices for coking coal remain subdued whilst thermal coal has rallied thus far this year. Our clear ambition is to reduce our coal exposure over the coming years through the acquisition of additional royalties and streams focused on greener materials.

“Although we are delighted with the quality, size and sustainability profile of the Voisey’s Bay acquisition, the job is not done. We are determined to build on the momentum of this transaction to increase our base and battery metals exposure further over the course of 2021 and are working on a number of opportunities.

“The wider market for base metals and strategic minerals looks favourable. The globally co-ordinated, planned infrastructure investment, as a kick start to economies post COVID-19, looks set to benefit these commodities. The movement towards the electrification of automobiles appears to be gathering pace, with an increasing number of manufacturers committing to this path and setting ambitious timetables. We also saw the US government invest directly into our Brazilian Nickel project, which is a clear sign that western countries are looking to secure vital access to strategic minerals. In the meantime, it is clear that future supply will not meet the excess demand and it is likely we will see prices remain at elevated levels.

“We look forward to the remainder of the year with cautious optimism and with prospects to add further growth to our business. We were delighted with the response to our recent equity raise and the support from our existing and new shareholders to the transaction was overwhelmingly positive. We remain committed to delivering value for all stakeholders in the years ahead.”

Read the article online at: https://www.globalminingreview.com/finance-business/15042021/anglo-pacific-release-2020-results/