“On the back of our positive Q3 trading update, on Thursday (3 December, 2015) I took part in a panel discussion at Mines and Money in London, focussing on alternative financing models for mining companies in the context of the current commodity price environment.
At the forefront of this discussion was the royalty model which forms the basis of Anglo Pacific’s business. Our approach is a simple but effective one. We invest in mining royalties, which give us the right to a certain percentage of revenue from a mine in return for an upfront payment. We are in many ways unique in what we do – there are many royalty and streaming companies focused on precious metals, but Anglo Pacific has a unique position and business model on the London Stock Exchange, as we focus on bulk commodities, base metals, and energy related commodities.
We have enjoyed considerable success so far, most recently with our acquisition of a coal royalty over Whitehaven’s Narrabri asset in Australia earlier this year , and we are looking to build upon this momentum in 2016. Anglo Pacific reviews hundreds of opportunities a year, and in the current climate we are specifically targeting base metal royalties including copper and zinc. As shadow financiers to a sector facing challenging headwinds, the commodities downturn actually benefits us, as increased pressure on mining companies’ finances leads them to seek alternative sources of capital.
We typically aim to invest between $25 million and $1 billion in royalty opportunities, albeit the higher number would be in partnership with co-investors, and look for a return on our investment which provides attractive levels of value to our shareholders. We don’t believe the market is going to improve any time soon, and expect that the pressure on miners’ balance sheets will increase in 2016, leading to a number of potential financing opportunities.
Consequently, taking the deliberate decision to bide our time will benefit Anglo Pacific as the characteristics of a royalty deal will become increasingly attractive to miners. Why do we believe this? Royalties have a number of clear benefits over other forms of capital. In the current market, where equity is hard to raise at attractive prices, debt is often even harder to come by and precious metal by-product streaming deals may prove finite, royalty companies such as ours are able to provide miners with an attractive alternative: an immediate cash injection in the form of off-balance sheet royalty financing. This is a compelling argument and one that we believe will become stronger as financing options for companies are reduced.
From an investor perspective royalties are also attractive. They provide exposure to commodities without some of the associated downsides (such as managing the asset and cost overruns), as our income is based on the mine’s revenue rather than profit, whilst also providing potential upside opportunity in the longer term. As long as the mine is producing , we will be entitled to a royalty on it, even if the production profile changes over time.
I am a passionate believer of the royalty model and all the differentiating factors relative to more common sources of capital and believe that Anglo Pacific is uniquely placed to take advantage of the current market environment – including the opportunity to acquire royalties of non-precious commodities from leading counterparties, and in the end creating significant value for our shareholders.”
Julian Treger, CEO of Anglo Pacific Group