Q1 2020 Trading Update and 7.7% increase in quarterly interim dividend

Anglo Pacific Group PLC (“Anglo Pacific”, the “Company” or the “Group”) (LSE: APF, TSX: APY), issues the following trading update for the period 1 January 2020 to 24 April 2020. Unless otherwise stated, all unaudited financial information is for the quarter ended 31 March 2020.

Highlights

    Q1 2020

£m

 

QoQ %

Q4 2019

£m

Q1 2019

£m

Kestrel   8.4 24% 6.8 11.8
Narrabri   0.8 33% 0.6 1.4
Mantos Blancos   0.6 (14%) 0.7
Maracás Menchen   0.5 0.5 1.1
Four Mile   0.1 0.1
Royalty income   10.4 20% 8.7 14.3
           
LIORC dividends   0.9 (64%) 2.5 1.7
Interest – McClean Lake   0.4 (20%) 0.5 0.5
           
Royalty related revenue   11.7 11.7 16.5
           
EVBC   0.5 (17%) 0.6 0.6
Principal repayment – McClean Lake   0.4 (20%) 0.5 0.4
Total portfolio contribution   12.6 (2%) 12.8 17.5

 

  • Minimal impact of COVID-19 on the Group’s royalties thus far with Q1 2020 portfolio contribution of £12.6m in line with Q4 2019
  • Commodity prices which determine the Group’s revenue in Q1 2020 were largely ahead of prices during Q4 2019 but far lower than Q1 2019
  • Kestrel revenue in Q1 2020 benefitted from higher coking coal prices and a weaker Australian dollar, in turn increasing the weighted average royalty rate, with volumes largely in line with Q4 2019
  • Year-on-year portfolio contribution down 28% mainly due to lower prices (noticeably Kestrel down by 28%) and lower dividends from LIORC
  • LIORC revenue received by the Company, which is derived from the passthrough of royalties and equity dividends received by LIORC from Iron Ore Company of Canada (“IOC”), decreased in the period. IOC did not declare an equity dividend in the first quarter of 2020, in part due to higher levels of expected IOC sustaining and growth capital expenditure in 2020. This is also consistent with prior years when IOC equity dividend payments have been weighted to the third and fourth quarters. LIORC has reaffirmed previous Rio Tinto full year 2020 saleable production guidance of 17.9 – 20.4mt which compares favourably to 17.1mt in 2019.
  • The completion of a longwall changeout in January 2020 resulted in increased volumes from Narrabri during Q1 2020 compared to Q4 2019, despite the now resolved weighting event which lead to 20 days of lost production
  • The Group is pleased with the level of production from Maracás Menchen in Q1 2020, noting this will trigger the final deferred payment in line with our expectations
  • Income from McClean Lake was in line with comparable quarters; however, we would expect this to be lower in Q2 2020 due to the operation being placed on care and maintenance as a result of COVID-19
  • 7.7% increase in the quarterly interim dividend level to 1.75p per share (previously 1.625p per share) in light of the limited disruption to material operations caused by COVID-19 thus far and the satisfactory level of income generated during the first quarter
  • Along with the 4.125p 2019 final dividend recommended, this would provide shareholders with 5.875p of income between now and 14 August 2020

The proposed dividend timetable sets out the upcoming dividends, as shown below

  Q4 2019 – Final Q1 2020 – interim
Payment date 18-Jun-20 14-Aug-20
Record date 05-Jun-20 03-Jul-20
Ex-div date 04-Jun-20 02-Jul-20
Amount 4.125p* 1.75p

*subject to shareholder approval at the 2020 AGM

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

“We are pleased to report resilient royalty revenue for Q1 2020, in-line with that of the immediately preceding quarter. This is largely due to the underlying operations from which we derive most of our revenue experiencing limited COVID-19 related disruption to-date. Overall, we saw a higher pricing environment during the first quarter of 2020 compared to Q4 2019, but we are still some way off the pricing levels seen twelve months ago.

The two noticeable variances in the quarter were the increase in Kestrel revenue compared to Q4 2019 due to underlying pricing, and the decrease in the dividends receivable from LIORC due to planned capital expenditure in the year ahead.

We have seen two instances of COVID-19 related disruption to the underlying mining operations from which our revenue is derived: EVBC was placed on care and maintenance for a two week period in March although we now understand this has ended; and Cigar Lake, which provides the throughput at the McClean Lake Mill was also placed on care and maintenance for an initial four week period from 23 March. We now understand that Cigar Lake will remain on care and maintenance for an indeterminate period. Overall, this is not material in the context of the Group’s results and even if this were to last for 3 months would only represent roughly 2.5% of 2019 portfolio contribution.

We are encouraged thus far by the way in which the Australian authorities have managed the threat posed by COVID-19 and it would appear, at this stage, that there should be minimal disruption to the mining sector as a result.

We have increased the quarterly interim dividend level from 1.625p per share to 1.75p per share. This increase is intended to reduce what has become a large weighting to the final dividend and is not an indication that there will be an increase in the overall dividend for 2020. The final dividend for 2020 will be assessed in Q1 2021 based on the outcome for the year.

We remain in a strong position, with a product which we believe will be increasingly attractive to a capital constrained sector and maintain liquidity in excess of US$75m to allow us to respond rapidly should the right opportunities arise.

In the meantime, our business continues as normal having provided all of our employees with the resources to work remotely as we support the UK Government’s “stay at home” measures. We continue to generate and appraise investment opportunities. All of our employees are being paid in full and we are also ensuring none of our suppliers are out of pocket during this period of lockdown.”

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