Q1 2017 Trading Update - Anglo Pacific Group

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 January 1, 2017 to May 10, 2017. Unless otherwise stated, all unaudited financial information is for the quarter ended March 31, 2017.

  • Total free cash flow generated in the period of £13.4m, up from £3.3m in Q1 2016
  • Total contribution of £10.0m
    • Royalty income of £7.5m in Q1 2017 – a 295% increase on Q1 2016 of £1.9m
    • Additional contribution of £2.5m (C$4.0m) from the Denison financing and streaming agreement entered into in February 20171
  • Increase in income from Q1 2016 mainly due to a 130% increase in average coal price achieved at Kestrel and a 56% increase at Narrabri
  • Significant increase in revenue from Maracás Menchen in the period to £0.4m from £0.1m in Q1 2016 as a result of recent record operational performance and a near doubling in the vanadium price
  • Net debt at March 31, 2017 of £6.5m, post the funding of the Denison financing and streaming agreement and 2016 interim dividend with expectation to be debt free by mid-2017
  • Outlook for 2017 has improved considerably following the sustained increase in coking coal prices above the levels anticipated at the beginning of the year due to weather related supply disruptions in Australia

Trading Update
The Company is pleased to report a very strong performance in Q1 2017, firmly supporting our view that this year will see significant organic growth for Anglo Pacific.
Combining our royalty income of £7.5m with the £2.5m (£1.8m of which relates to backdated receipts from H2 2016) from our Denison financing agreement resulted in a total contribution from our portfolio of £10.0m compared to £1.9m in Q1 2016. Higher coal prices have driven the near 300% increase in royalty revenue, with the average price from Kestrel more than double that of Q1 2016 and Narrabri being 56% higher. In addition, revenue from Maracás Menchen has increased significantly in the period to £0.4m as a result of recent record operational performance and a near doubling in the vanadium price.
Encouragingly, Q1 2017 is expected to be our lowest quarter in terms of sales volumes from both Kestrel and Narrabri in 2017. Importantly, this is also the last time that we expect any material production from Kestrel to be outside of our royalty land for the foreseeable future.
When we reported our 2016 annual results at the end of March, we were confident that 2017 would be another significant year of growth for Anglo Pacific. This was when the outlook for spot coal prices was coming off. However, recent weather events in Australia significantly impacted upon the supply of coking coal as both operations and infrastructure were hampered. This resulted in another noticeable spike in coking coal prices during the second quarter, above the levels which we were anticipating at the beginning of 2017.
It is our view that higher coking coal prices will now prevail for longer in 2017. With Kestrel’s operations reportedly unaffected by weather events, we now anticipate an even stronger year of growth for Anglo Pacific than at the time we reported our 2016 results.
Total free cash flow generated in the period is £13.4m compared with £3.3m in Q1 2016, with net debt at March 31, 2017 of £6.5m, post the funding of the Denison financing and streaming agreement and 2016 interim dividend. The Group expects to be debt free by mid-2017.
As previously stated, the Board will reconsider dividend levels at the time of the interims, when we have greater visibility as to coal price movements for the full year and the outlook for the next few years.
Julian Treger, Chief Executive Officer of the Company, commented:
“The additional £2.5m generated from the recent Denison transaction is further evidence of the importance of continuing to diversify our portfolio. We feel now is the right time to put capital to work in the sector and are continuing to work hard to identify and execute new royalties which will provide meaningful additional revenue over many years to come.”
1 Income from the Denison financing and streaming transaction will not appear as royalty revenue as the transaction is structured initially as a loan. As such, cash receipts will be apportioned between interest (income statement) and debt repayment (balance sheet). This income will, however, be included in our free cash flow measure. Of the total of £2.5m, £1.8m related to back payments in lieu of H2 2016 toll revenue.
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