Interim results for the six months ended 30 June 2020

Anglo Pacific Group PLC (“Anglo Pacific”, the “Company”, the “Group”) (LSE: APF) (TSX: APY) is pleased to announce interim results for the six months ended 30 June 2020 which are available on both the Group’s website at www.anglopacificgroup.com and on SEDAR at www.SEDAR.com.

The Group’s portfolio contribution for H1 2020 of £19.1m was 43% lower than H1 2019 as a result of the significant decrease in coal prices during Q2 2020 caused by the COVID-19 pandemic. The impact of lower coal prices is compounded in the Group’s Kestrel royalty as they also result in a lower royalty rate. A number of other one-off events at Maracás Menchen and LIORC also resulted in the lower portfolio contribution. Despite the Group’s performance in the first half of 2020, as we are anticipating an increase in portfolio contribution in H2 2020 we are maintaining the Group’s quarterly dividend of 1.75p per share, in line with the Group’s stated objective to return a significant portion of its income to shareholders as dividends.

Results

  H1 2020 H1 2019
£’000 % Mvt £’000
Kestrel 11,974 (47%) 22,692
Royalty related dividends (LIORC) 2,296 (33%) 3,420
Narrabri 1,586 (30%) 1,783
Mantos Blancos 1,200
Maracás Menchen (304) 2,273
McClean Lake / Denison – interest 888 (9%) 975
Four Mile 133 21% 110
Royalty related revenue 17,773 (43%) 31,253
EVBC – royalty receipts 967 (5%) 1,021
McClean Lake / Denison – principal 403 (60%) 1,015
Total portfolio contribution 19,143 (43%) 33,289

 

  • 43% decrease in portfolio contribution1 in H1 2020 to £19.1m (H1 2019: £33.3m) – primarily due to weaker coking coal prices and an associated reduction in the applicable royalty rate at Kestrel, together with the one-off charge of £1.0m (US$1.2m) at Maracás Menchen upon the termination of the Glencore offtake agreement
  • Basic loss per share of 6.22p (H1 2019: earnings of 16.76p)
  • Adjusted earnings2 per share of 5.85p (H1 2019: 12.13p)
  • No change to quarterly dividend level of 1.75p per share
  • The mines underlying the Group’s major producing royalties, Kestrel, Narrabri, Mantos Blanco and Maracás Menchen, were fully operational during the period and remain largely unimpacted by COVID-19
  • During Q3 2020 we expect to see an end to COVID-19 shutdowns as Cigar Lake (McClean Lake mill) restarts, with EVBC having restarted already in Q2 2020
  • Volumes from Kestrel from within the Group’s private royalty land in-line with that of H1 2019
  • Record production levels at Maracás Menchen during Q1 2020 following the successful completion of the expansion plan and triggering the final payment of US$1.5m (£1.2m) in deferred consideration
  • Termination of the Glencore offtake arrangement in April 2020 at Maracás Menchen should see lower deductions applied to the Group’s royalty going forward
  • Net debt of £39.8m at 30 June 2020 (31 December 2019: £28.8) with access to ~US$55m, including the $30m accordion facility
  • 4% decline in net assets to £217m (£226m at the beginning of the year) reflecting lower coal price forecasts
  • £5.7m additional investment in LIORC made during Q1 2020
  • Entered agreement enabling the Group to participate in Tranche II of the Incoa financing agreement up to US$20m

 

Events since balance sheet date

  • Berkeley Energia announced the granting of one of the two key permits outstanding before mine construction can commence – resulting in an 80% increase in their share price (Anglo Pacific has a 6.8% shareholding)
  • Cameco and Orano have signalled their intention to restart operations at the Cigar Lake mine and McClean Lake mill respectively, in September which will result in cashflow resuming under the Denison financing arrangement

Outlook

  • Stronger results expected in H2 2020 across much of the portfolio:
    • Kestrel should benefit from the recent improvement in coking coal prices and COVID-19 related port restriction impacting the Indian market being relaxed
    • LIORC expected to benefit from iron ore prices currently trading at twelve-month highs whilst demand fundamentals remain strong
    • Enhanced margins expected at Maracás Menchen following conclusion of discounts associated with the Glencore offtake arrangement and transition to an in-house sales function in Q2 2020
    • Increased cashflows from the Denison financing agreement with operations restarting at the McClean Lake mill following COVID-19 related disruptions
  • Substantial undrawn borrowings available to finance further growth in H2 2020

Julian Treger, Chief Executive Officer, commented:

“Our portfolio contribution in H1 2020 reflects the significant market volatility caused by COVID-19 on coal markets in particular, resulting in a 43% reduction compared to H1 2019. Not all commodities have fared badly and we have seen iron ore prices outperform as well as a significant bounce back in the copper price (our two most recent portfolio additions) as some stability returned to the markets following global central bank interventions and government backed economic stimulus measures. We have seen immaterial operational disruptions to our key assets, which highlights the quality of our portfolio and our strategy to invest in jurisdictions which treat their mining industries as key to their economic health.

We see a stronger pricing environment already taking place thus far in H2 2020. With ~US$55m of undrawn borrowings (including the US$30m accordion) and what should be healthy demand for alternative financing, we remain focused on our growth ambitions for the remainder of the year.

Although we have been successful in diversifying away from coal, along with our firm commitment not to add any further thermal coal investments, our revenue will, in the short-term, continue to be weighted towards coking coal especially as we await revenue from our development portfolio. We will continue to reinvest the Kestrel revenue into non-coal royalties in line with our ESG and investment policy to offer stakeholders exposure to high quality and ethically operated base and bulk commodities. It was pleasing that, at 30 June, LIORC was the largest asset on the Group’s balance sheet, the first time in recent history that a non-coal asset held this position.

We have seen strong and growing momentum in our development assets which could see considerable value accrue to the Group for assets which are ascribed little balance sheet value, noticeably the recent permit grant for Berkeley Energia, the cornerstone position Fortescue have taken in the Canariaco project, the earn-in agreement we consented to for Dugbe 1 and the efforts being made to bring Amapá back on line as reported by Cadence Minerals. We understand that progress is also being made in respect of raising the necessary finance for Brazilian Nickel which would enable the unlocking of substantial value for the group when that asset comes into production.

We continue to be very active and are currently assessing a number of potential transactions. Anglo Pacific remains firmly open for business, is well capitalised and remains focused on growth and diversification for what should be a stronger half to come in H2 2020.”

1 Portfolio contribution represents the funds received or receivable from the Group’s underlying royalty related assets which is taken into account by the Board when determining dividend levels. Portfolio contribution is royalty related revenue plus royalties received or receivable from royalty financial instruments carried at fair value through profit or loss and principal repayments received under the Denison financing agreement.

2 Adjusted earnings represent the Group’s underlying operating performance from core activities.  Adjusted earnings is the profit/loss attributable to equity holders plus royalties received from royalty financial instruments carried at fair value through profit or loss, less all valuation movements and impairments (which are non-cash adjustments that arise primarily due to changes in commodity prices), amortisation charges, share-based payments, unrealised foreign exchange gains and losses, and any associated deferred tax, together with any profit or loss on non-core asset disposals as such disposals are not expected to be ongoing.  Adjusted earnings divided by the weighted average number of shares in issue gives adjusted earnings per share. Refer to note 6 to the financial statements for adjusted earnings per share.

3 Free cash flow per share is calculated by dividing net cash generated from operating activities, plus proceeds from the disposal of non-core assets and any cash considered as the repayment of principal, less finance costs, by the weighted average number of shares in issue

Analyst presentation

There will be an analyst presentation webcast at 9:30am (BST) on 27 August 2020. The presentation will be hosted by Julian Treger (CEO), Kevin Flynn (CFO) and Juan Alvarez (Head of Investments)

Dial in details for the call are as follows:

Number you should dial Participant Access Code
+44 (0)330 336 9411 6012453

The webcast cast presentation can be found at the following URL:

https://webcasting.brrmedia.co.uk/broadcast/5f3c0d8ab14d8726264391fc

For a full copy of this release please click here