This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 (as amended)
Anglo Pacific Group PLC (“Anglo Pacific”, the “Company” or the “Group”) (LSE: APF, TSX: APY), the London and Toronto listed royalty company, issues the following trading update for the period October 1, 2016 to December 31, 2016, ahead of the release of its full year results on March 30, 2017. Unless otherwise stated, all unaudited financial information is for the quarter ended December 31, 2016.
- ~140% increase in royalty income for the year to £20.5 – £21.5m (2015: £8.7m), mainly driven by the significant increase in saleable tonnes at Kestrel being derived from the Group’s private royalty lands
- Royalty income for Q4 2016 in the range of £11.6m – £12.6mm (Q3 2016: £4.8m, Q4 2015: £3.0m)
- 88% and 67% of Kestrel’s saleable tonnes in H2 2016 and FY 2016 respectively derived from the Group’s private royalty lands
- The Group continues to expect 85-90% of Kestrel’s saleable tonnes will be derived from its private royalty lands in 2017
- Narrabri performed in line with the Group’s expectations in H2 2016 with further production growth expected in 2017 through the imminent expansion of the longwall infrastructure
- Kestrel valuation expected to be A$195.0m – A$205.0mm at December 31, 2016 (June 30, 2016: A$147.8m)
- Expected impairment charges of £5.0 – £8.0m relating to the Group’s Amapá and Dugbe 1 royalties
- Net debt at December 31, 2016 of £0.9m (September 30, 2016: £8.2m)
- Dividend cover for 2016 expected to be approximately 1.5x
Julian Treger, Chief Executive Officer of the Company, commented:
“Anglo Pacific enjoyed a strong second half of 2016, principally due to the significant increase in saleable tonnes from Kestrel being derived from the Group’s private royalty lands and another strong and consistent production quarter from Narrabri. The Group expects to report income of £11.6m – £12.6m in the fourth quarter alone, which is approximately 147% and 299% higher than both the immediately preceding quarter and the same quarter in the previous year respectively. Combined with the £8.9m earned to the end of Q3 2016, this should result in overall royalty income for 2016 of £20.5 – £21.5m. Such an outcome would represent the highest level of annual income reported by the Group since 2011.
Equally encouraging is our outlook for 2017, where we expect further growth in our income as 85-90% of Kestrel’s saleable tonnes are expected to be derived from our private royalty area, a significant uplift from the 67% in 2016. Our royalty income is also expected to be strong in Q1 2017 following the settlement of coking coal contract prices at $285/t. The combination of increased saleable tonnes and higher prices, along with the potential for the pound to remain weak in the near term, should translate into further growth in royalty income for this year.
The Group ended the year with very little net debt and has the flexibility to draw down on its facility to finance future acquisitions. The additional income generated in H2 2016 has also directly benefited our dividend cover which is expected to be approximately 1.5x for 2016 as a whole.
We are pleased with the improvement in our financial position, though the Board is mindful that the coking coal price is widely anticipated to level off during the course of the year. As such, we feel it is prudent to monitor the level of income received during 2017 and reassess the dividend should income grow as expected.
In addition to its reassessment of the dividend, the Board is also considering investing some surplus cash in growth royalties where these opportunities meet our strict investment criteria. Although cash producing royalties will remain at the forefront of our strategy, we now feel that we are in a position to deploy a modest amount of capital in development royalties which, by their nature, should result in higher returns over time. We have seen some opportunities in this area, which is still largely closed to more conventional sources of capital, and will cautiously select certain projects which are consistent with our strict investment criteria but have the ability to provide exceptional returns over the next decade.
Overall, we are very pleased with the progress we have made in 2016 and our outlook for the year ahead.”
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