Q3 2020 Trading Update - Anglo Pacific Group

Anglo Pacific Group PLC (“Anglo Pacific”, the “Company” or the “Group”) (LSE: APF, TSX: APY), issues the following trading update for the period 1 July to 4 November 2020. Unless otherwise stated, all unaudited financial information is for the quarter ended 30 September 2020.

    Q3 2020   Q2 2020 9M 2020 9M 2019
    £m QoQ% £m £m YoY% £m
Kestrel 2.23 (37%) 3.52 14.27 (53%) 30.33
Royalty related dividends (LIORC) 1.17 (15%) 1.38 3.47 (41%) 5.90
Narrabri 0.82 (14%) 0.95 2.41 (29%) 3.39
Mantos Blancos 0.66 12% 0.59 1.86 564% 0.28
McClean Lake/Denison – interest 0.45 0% 0.45 1.34 (8%) 1.46
Maracás Menchen 0.27 131% (0.87) (0.05) (102%) 2.31
Four Mile 0.13 117% 0.06 0.26 37% 0.19
Royalty related revenue 5.73 (6%) 6.08 23.56 (46%) 43.86
EVBC – royalty receipts   0.64 42% 0.45 1.61 0% 1.61
McClean Lake/Denison – principal   0.00 0% 0.00 0.40 (61%) 1.03
Total portfolio contribution   6.37 (2%) 6.53 25.57 (45%) 46.50
  • Portfolio contribution of £6.4m in Q3 2020 largely in line with £6.5m in Q2 2020.  The decrease primarily driven by lower volumes at Kestrel following a longwall changeout, which is not expected to reoccur until Q3 2021. Production is expected to increase at Kestrel in Q4 2020 after a record longwall change-out was achieved in Q3 2020
  • Metallurgical and thermal coal prices remained subdued during Q3 2020, however, copper and iron ore have continued to rally, reaching multi-year highs
  • The operations underlying the Group’s producing royalty related assets remain largely unaffected by COVID-19, with activity resuming at the McClean Lake Mill in September which will lead to a full quarter of tolling receipts in Q4 2020
  • Largo Resources, the operator of the Maracás Menchen mine is continuing to guide full year sales of 9,500t to 10,000t Vanadium oxide (V2O5) after building up stockpiles in Q2 and Q3 2020 as they transitioned to an in-house sales and marketing function, indicating a strong Q4 2020 which should mitigate some of the weakness in the year to date
  • LIORC declared a Q3 2020 dividend of C$0.45/share, resulting in year to date dividends of C$1.25/share, and given the increase in iron ore prices there is an expectation in the market that the Q4 2020 dividend could be higher
  • Net debt position as at 30 September 2020 of £34.0m compared to £39.8m as at 30 June 2020, reflecting the receipt of the Q2 2020 royalties and Kestrel instalments during Q3 2020
  • The Group has bought back 4,369,754 shares since initiating the £5.0m share buyback on 25 September 2020, increasing earnings per share and resulting in annual savings in dividend payments. The buyback was funded through the partial disposal of the Group’s non-core equity interests
  • As previously announced, payment of the 1.75p Q2 2020 interim dividend will be made on 13 November 2020, followed by payment of the 1.75p Q3 2020 dividend on 17 February 2021. The Board will recommend a final dividend for 2020 in Q1 2021
  • Following the successful completion of the longwall changeout in Q3 2020, we expect volumes to increase at Kestrel, which together with other positives like higher Q4 2020 broker consensus dividend forecast from LIORC, should result in a higher portfolio contribution during Q4 2020

Julian Treger, Chief Executive Officer of the Company, commented:
“We were encouraged by the operating performance of the royalty portfolio during Q3 2020 which continue to function without material Covid-19 disruption. The actions taken by the underlying operators suggests that we could see a stronger finish to the year across the portfolio at a time when certain commodity prices are showing signs of improvement.
A highlight of the quarter was the US government committing to a US$25 million investment in Brazilian Nickel to advance the Piauí Nickel Project, over which the Group has a 1.25% gross revenue royalty. This cornerstone investment should facilitate the path towards production and further unlock organic value for the Group.
We continue to generate and evaluate a significant number of opportunities and are confident in our pipeline and ability to further diversify the business by asset and commodity including investing in the materials of the future. The Company remains in a strong financial position with a healthy balance sheet and undrawn debt facilities of US$63.6 million (inclusive of the US$30 million accordion). Over and above the ability to draw down on our debt financing the Company may also opportunistically consider other potential sources of funding should these be required, including hybrid equity debt instruments which would permit the company to benefit from the attractive current interest rate environment and thus fund the Company’s growth in an efficient and accretive manner.”
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