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Q4 21 Trading Update $38.1m portfolio contribution in final quarter, a new record - 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 October 2021 to 27 January 2022, which includes certain information for the year ended 31 December 2021. The Company expects to release its full year results on 30 March 2022. Unless otherwise stated, all unaudited financial information is for the quarter or year ended 31 December 2021.

Buoyed by continued strength in coking coal and cobalt prices, both trading at recent historical highs, the Company’s portfolio generated $38.1m in the fourth quarter alone, bringing the total contribution for the year to $85.6m. This represents both a record individual quarter and a record year for the Group and will result in a significant acceleration of the Group’s deleveraging and provides enhanced financing flexibility for further acquisitions.

Importantly, both coking coal and cobalt prices have remained at recent record levels thus far in 2022 and so the outlook for short-term earnings looks encouraging. The royalty model provides exposure to this commodity price upside while offering greater protection against operating cost increases and capex over-runs being seen across the mining sector as a result of the current inflationary pressures.

Portfolio contribution – Unaudited* Q4 2021 Q3 2021 2021 2020
$m QoQ% $m $m YoY% $m
Kestrel 26.00         122% 11.70 48.06         107% 23.25
Voisey’s Bay 6.59            (3%) 6.81 16.52               –
Narrabri 1.74         234% 0.52 3.45         (12%) 3.91
Mantos Blancos 1.35          (14%) 1.57 5.67            55% 3.66
Maracás Menchen 0.87            (3%) 0.90 3.20         357% 0.70
Four Mile 0.06          (40%) 0.10 0.27         (53%) 0.58
Royalty and stream income 36.61            69% 21.60 77.17         140% 32.10
   
Dividends – LIORC & Flowstream 0.94          (48%) 1.80 5.61         (39%) 9.23
Interest – McClean Lake 0.60            (2%) 0.61 2.43              7% 2.28
   
Royalty and stream related revenue 38.15            59% 24.01 85.21            95% 43.61
   
EVBC** 0.78              5% 0.74 3.11              5% 2.97
Principal repayment – McClean Lake 0.75            47% 0.51 1.26            42% 0.89
   
Less:    
Metal streams cost of sales (1.60)            (3%) (1.65) (4.01)                –
   
Total portfolio contribution 38.08 61% 23.61 85.57 80% 47.47
* The portfolio contribution above is unaudited and based on narrow midpoint range, therefore, the actual number reported in the forthcoming annual report may be slightly higher or lower.
** Following the application of IFRS 9, the royalties received from EVBC are reflected in the fair value movement of the underlying royalty rather than recorded as royalty income.

Highlights:

  • $38.1m of portfolio contribution in Q4 21, a second consecutive quarterly record – 61% more than the previous record of $23.6m in Q3 21 and more than double the $15.0m in Q4 20
  • Total portfolio contribution for FY 21 increased to around $85.6m, an 80% uplift on FY 20
  • Cobalt prices currently 70% higher than at the time of the Voisey’s Bay acquisition
  • Sales volumes at Kestrel were down ~6% in Q4 21, which should benefit revenue in H1 22 at higher prices as these deferred volumes are recovered
  • Voisey’s Bay generated a net contribution of $12.5m during nine months of post-acquisition ownership, with a further $1.6m generated from two lots shipped in December 2021 and delivered in January 2022
  • Cobalt prices in H2 21 trigger, subject to threshold production volumes being achieved, contingent consideration of up to $1.5m being payable at 31 December 2021, the payment of which is self-funded through the higher stream income
  • Current coking coal and cobalt prices of $400/t and $34/lb respectively, are higher than the prices achieved during the record Q4 21
  • Leverage ratio expected to decrease significantly, comfortably under 1.5x at 31 December 2021
  • The Nomination Committee and Board are in the advanced stages of finalising the CEO succession, with an announcement expected to be made shortly

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

“I am delighted to report yet another quarterly record, a quarter which truly highlights the potential of our portfolio, our significant exposure to top performing commodities and the successful execution of our strategy. The contribution from the fourth quarter alone was 80% of that generated for the full year 2020.

These record results are largely attributable to a prolonged increase in coking coal and cobalt prices. It is worth remembering that at this time last year the coking coal price was just above $100/t and the cobalt price below $20/lb.

The coking coal price has now been well in advance of $350/t over the past three months and is just over $400/t today in a market that is noticeably more stable than this time last year when the impact on the seaborne market of the Chinese import ban and the disruption to key import markets in Asia due to Covid was still being worked through.

In addition, infrastructure disruption in Africa has resulted in shortages of cobalt to the market at a time when demand from both traditional end markets and, more importantly, from battery manufacturers has increased. This has seen the cobalt price rally significantly since the beginning of December to $34/lb today, which is 70% higher than at the time of the Voisey’s Bay acquisition, and the short-term outlook remains positive.

Sales volumes from Kestrel were lower than expected during 2021. This shortfall is expected to be recovered during the first half of 2022 and delays the period in which mining moves away from our private royalty land by a further quarter. With stronger coking coal prices at the beginning of this year compared to last, this bodes well for earnings in 2022.

The impact of this record level of quarterly contribution will allow very meaningful deleveraging during the first quarter of 2022 and provide us with greater access to liquidity from which to continue to add growth opportunities to what we believe is the highest quality portfolio of future facing base metal royalty and streaming assets in the market.

Finally, as this is my valedictory trading update, I would like to express my thanks to all our stakeholders for supporting the strategic pivot of the business from our coal legacy towards those 21st century commodities that will support a more sustainable world. I am proud of what has been achieved over the past eight years and the Company is in safe hands with a very talented and experienced management team capable of taking the business to the next level.”

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