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Anglo Pacific Group acquires Voisey’s Bay cobalt stream

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Global Mining Review,

Anglo Pacific Group PLC has announced that it has agreed to acquire a holding company that, in turn, holds a 70% net interest in a stream on cobalt production from the Voisey's Bay mine in Canada from private equity sellers for cash consideration of US$205 million at closing and further contingent consideration of up to US$27 million (the acquisition). This is a landmark transaction that will provide a significant long-life revenue stream from an established, world class operation and is a transaction that materially progresses the company's ambition to focus on 21st century commodities that support a more sustainable world.

The acquisition will be financed through a combination of an equity placing of less than 20% of the company's issued share capital, the previously announced profitable monetisation of a portion of the group's Labrador Iron Ore Royalty Corporation (LIORC) investment, and a new US$180 million credit facility from a syndicate of leading Canadian banks, comprising Scotiabank, RBC Capital Markets, and Canadian Imperial Bank of Commerce.

Transaction highlights

  • A new cornerstone asset: Voisey's Bay is an established nickel-cobalt-copper mine, located in Canada, a well-established mining jurisdiction, and is an important operation of Vale Canada Ltd (a subsidiary of Vale S.A., one of the world's largest mining companies). It is a long-life operation, supporting the group's sustainable, through-the-cycle cash flow generation.
  • Strong cobalt fundamentals: The long-term fundamentals of the cobalt market are expected to be very favourable and benefit from the accelerating trend toward the adoption of electric vehicles.
  • Repositioning to materials of the 21st century: 61% of the pro-forma royalty portfolio will be attributable to battery related materials and significantly reduces the company's exposure to coal.
  • World class operation: Voisey's Bay is a world class nickel-cobalt-copper mine, positioned in the 2nd lowest quartile of the industry cost curve and provides exposure to one of the largest sources of cobalt outside of the Democratic Republic of the Congo (DRC).
  • Environmental credentials: Within the industry, Voisey's Bay ranks amongst the lowest global emitters of carbon dioixde, supported by a leading sustainability and safety track record.
  • Accretive transaction for Anglo Pacific's shareholders: The acquisition is expected to be immediately accretive and to provide a platform for long term earnings growth, as Kestrel's contribution to the portfolio declines.
  • Stream details:
    • Anglo Pacific is entitled to receive 22.82% of all cobalt production from Voisey's Bay up until 7600 t of finished cobalt has been delivered, which then reduces the stream to an 11.41% entitlement thereafter.
    • Anglo Pacific will make ongoing payments equal to 18% of an industry cobalt reference price for each pound of cobalt delivered under the cobalt stream, until Anglo Pacific has recovered the US$300 million original upfront amount paid for the stream (through accumulating credit from 82% of the cobalt reference price) through cobalt deliveries; thereafter, the ongoing payments will increase to 22% of the cobalt reference price.
  • Downside protection: The stream agreement provides that if mill throughput does not reach 85% of targeted levels by 31 December 2025, some or all of the upfront amount may be refunded or the applicable cobalt stream percentages may be increased, providing downside protection.

Julian Treger, CEO of Anglo Pacific, commented: "I am extremely pleased to be able to announce the acquisition of this Voisey's Bay cobalt stream. It will provide a significant long-life income source for Anglo Pacific and materially progresses our ambition to focus on 21st century commodities that support a more sustainable world. Along with the recent additional investment in Brazilian Nickel, the Group's net asset profile will consist of 61% base metals on a pro-forma basis and we continue to have the option to invest a further US$70 million into its Piaui nickel royalty.

“The transaction is expected to be immediately earnings accretive and provides exposure to a market that is fuelled by the fast-growing future demand for electric vehicles. Voisey's Bay is located in a well-established mining jurisdiction and represents one of the largest sources of cobalt outside of the DRC.

“We believe that this transaction largely solves Anglo Pacific's two major strategic challenges: it addresses the medium-term declining income at Kestrel and significantly repositions the company's portfolio away from coal. We are delivering on our promise to recycle our short-term coal cash flow into clean commodities whose use is largely in facilitating cleaner energy and technology. The acquisition of this new cornerstone asset will underpin Anglo Pacific's ability to deliver further growth and sustainable future returns for our shareholders.

“We have taken advantage of the recent strong rebound in the price of iron ore and have sold a large portion of our holding in LIORC to partially finance an optimal entry point in cobalt. This, together with the support of a new syndicate of leading Canadian banks, means that we are in a strong position to further grow and diversify our portfolio.

“I would like to thank all of our stakeholders for their continued support and look forward to steering Anglo Pacific towards further sustainable investments."

The acquisition is expected to close in March 2021 and is subject to completion of customary conditions.

RBC Capital Markets acted as lead Financial Adviser together with Canadian Imperial Bank of Commerce and Scotiabank acting as Co-advisers to Anglo Pacific Group in connection with the acquisition. Scotiabank (acting as Agent), Canadian Imperial Bank of Commerce and RBC Capital Markets acted as joint Lead Arrangers on the new US$180 million revolving credit facility.

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