Half Year 2020 Trading Update

Anglo Pacific Group PLC (“Anglo Pacific”, the “Company” or the “Group”) (LSE: APF, TSX: APY), is pleased to issue the following trading update. Unless otherwise stated, all unaudited financial information is for the quarter or half year ended 30 June 2020.

This update is ahead of the release of the Group’s audited half year results on 27 August 2020.

Highlights

  • Portfolio contribution of £18.5 – £19.0m in H1 2020 compared to £25.5m in H2 2019 and £33.1m in H1 2019. The decrease is largely due to the recent softening of coal prices as a result of COVID-19, despite earlier resilience
  • Two instances of COVID-19 related disruption. EVBC was placed on care and maintenance for a two week period but resumed production in April; and Cigar Lake, which provides the throughput at the McClean Lake processing mill remains on care and maintenance and is working to determine a restart date. Overall, this is not material in the context of the Group’s results
  • Despite iron ore prices holding up particularly well due to the supply issues persisting in Brazil, income from LIORC was lower due to planned capital expenditure at the underlying operation reducing the special dividend from what was a higher level in H1 2019
  • Termination of the Largo offtake arrangement with Glencore has resulted in a ~£1.0m adjustment to the previous royalties we received. We would expect that once the transition to the internal sales function has taken place, margins should increase resulting in a higher level of royalty income, subject to price
  • Further £5.7m investment in LIORC during Q1 2020, representing the reinvestment of dividend income, taking our total stake to 7.0%. We were pleased to see the share price of LIORC recovering significantly during Q2 2020
  • Tranche 1 financing of the Incoa project, the Group’s most recent addition, has now been completed which should provide the Company with the opportunity to proceed with its US$20m Tranche 2 contribution in due course
  • Net debt of ~£40m at the end of June 2020 (£28.8m at the beginning of the year) reflecting H1 dividends, including the final dividend paid at the end of June of £10.4m, 2019 final tax payments of £9.3m, along with the payment of the last US$1.5m tranche of deferred consideration for Maracás Menchen
  • Revenue generated during the first half of 2020 along with a lower pricing forecast will result in a decrease in the value of the Kestrel royalty at 30 June 2020
  • The Group paid 5.875p in dividends in the first half of the year and a further 1.75p will be paid at the quarterly dividend payment date of 14 August 2020
  • The Group is expecting H2 2020 to be stronger, in light of improved coking coal spot prices, the rally in copper and iron ore, along with the backdrop of a recovery in demand from China.

Development Portfolio Update

The following is a brief update on some of the Group’s development assets carried on the balance sheet at minimal value for which there have been some noteworthy updates during the first half of 2020 that could see a path created towards unlocking value for the Group.

  • Cañariaco Copper Project – One of the largest development stage copper projects in the world. Candente Copper recently announced that Australian iron-ore major Fortescue Metals had increased its holding in TSX-listed Candente Copper from 9.72% to 19.9%. At its cost, Fortescue will allocate two engineers to work part-time on a joint technical committee with Candente Copper to identify the optimum strategy for the development of the project. The Group holds a 0.5% NSR royalty over the project at a cost of US$1m
  • Dugbe 1 Gold Project – The largest discovery of gold in Liberia. Hummingbird Resources has entered into an earn-in agreement with ARX whereby ARX will undertake the feasibility study in return for up to 49% interest in the project. The Group has a 2% NSR royalty over this project which it carries at US$1m on its balance sheet but should the asset come into production sooner this would increase significantly
  • Incoa Calcium Carbonate Project – Tranche 1 has now been completed, paving the way for the Group’s US$20m investment subject to the completion of strict milestones

Julian Treger, Chief Executive Officer of the Company, commented:

“Although we have seen limited COVID-19 operational disruptions at our main producing assets, we have been impacted through a softer pricing environment during the second quarter, particularly in relation to metallurgical and thermal coal caused by a combination of Indian import restrictions and weaker economic activity in China during the first quarter. Both events have resulted in a supply surplus which has impacted on prices.

Overall, we expect H2 2020 to be stronger than H1 2020 as demand gradually recovers, driving improved commodity pricing, which we have already begun to see thus far in Q3 2020.

We continue to evaluate opportunities, and we hope to make progress in terms of executing transactions in H2 2020. We remain focused on delivering growth during the course of the second half of the year.”

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