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Results for the year ended 31 December 2020 - Anglo Pacific Group

Anglo Pacific Group PLC (‘Anglo Pacific’, the ‘Company’ or the ‘Group’) (LSE: APF, TSX: APY) is pleased to announce its full year results for the year ended 31 December 2020, consistent with the trading update published on 8 February 2021. The Company has also published its audited 2020 Annual Report and Accounts, which are available on the Group’s website at www.anglopacificgroup.com and on SEDAR at www.SEDAR.com. The following statement should be read in conjunction with the audited financial statements.
The results for 2020 reflect the business before the completion of the US$205m Voisey’s Bay cobalt stream acquisition, announced on 12 March 2021, the Group’s largest and most significant transaction, setting Anglo Pacific on the road to become the leading growth royalty and streaming company, focused on 21st century commodities.
2020 Portfolio Highlights

  2020
£m
YoY
%
2019
£m
2018
£m
2017
£m
2016
£m
Kestrel 18.1 (51)% 37.0 32.6 28.8 13.1
Maracás Menchen 0.5 (82)% 2.8 5.9 2.0 0.8
Narrabri 3.1 (23)% 4.0 3.5 4.9 4.3
Mantos Blancos 2.9 190% 1.0
Four Mile 0.4 33% 0.3 0.1 0.3
EVBC*     1.7 1.2
Royalty income 25.0 (44)% 45.1 42.1 37.4 19.7
Dividends – LIORC and Flowstream 7.2 (17)% 8.7 1.9
Interest – McClean Lake & Jogjakarta 1.8 (5)% 1.9 2.1 2.2 0.3
Royalty related revenue 34.0 (39%) 55.7 46.1 39.6 20.0
EVBC* 2.3 5% 2.2 2.0
Principal repayment – McClean Lake** 0.7 (63)% 1.6 1.3 3.0
Total portfolio contribution 37.0   (38)% 59.5 49.4 42.6 20.0

* 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.
** The McClean Lake principal repayment in 2017 included £1.8m relating to tolling receipts from H2 2016
Financial Highlights

  • Results reflect lower production levels from Kestrel compared to the record level produced in 2019. 2020 volumes were 11% lower at 5.8mt which are expected to be the level the operators are targeting in the near-term
  • Coal prices were significantly impacted by the closure of Indian ports for a period in mid-2020 as a measure to contain the outbreak of COVID-19
  • Royalty income reflects a US$1.3m charge at Maracás Menchen due to monies owed to Glencore upon the termination of its offtake agreement
  • £34.0m in royalty related revenue (2019: £55.7m)
  • Total portfolio contribution of £37.0m (2019: £59.5m)
  • Operating profit of £22.1m (2019: £44.8m)
  • Loss after tax, which includes valuation and impairment charges, of £18.6m (2019: profit after tax £29.0m) which reflects a £44.2m valuation charge against Kestrel and impairments of £3.4m
  • Basic loss per share of 10.31p (2019: earnings of 16.06p)
  • Adjusted earnings1 per share of 12.35p (2019: 20.41p)
  • Net debt at the year-end of £24.3m (2019: £28.8m) benefitting from the £15.2m of LIORC disposals made in December 2020, at a profit of £1.9m, in preparation for the financing of the Voisey’s Bay stream acquisition
  • Kestrel represented 17% of the Group’s royalty assets on the balance sheet (2019: 26%) expected to reduce further to 12% upon the acquisition of the Voisey’s Bay cobalt stream in March 2021

Operating Highlights

  • Minimal operational disruption caused by COVID-19 during 2020 across our portfolio
  • Kestrel operator reduced production from its record levels in 2019, with production expected to be maintained at these levels in 2021
  • Record sales achieved at Maracás Menchen in Q4 2020 and further growth expected in 2021 following plant expansion and targeted biproduct sales
  • Another strong performance from LIORC with total dividends for 2020 of C$3.05 (2019: C$4.00) despite planned capex investment at the underlying operation impacting the special dividend in 2020
  • 10% decrease in operating expenses to £6.4m in 2020 despite increased costs associated with the Four Mile legal dispute. In relation to the latter, we are hopeful that there will be some tangible progress made to this case over the coming months

Investment highlights

  • US$205m acquisition of the Voisey’s Bay cobalt stream completed in March 2021, the Group’s largest and most significant transaction, setting Anglo Pacific on the road to become the leading growth royalty and streaming company, focused on base and battery metals
  • US$20m financing agreement entered into with Incoa Performance Minerals, financing conditional upon operational milestones being achieved – could be invested as early as Q4 2021
  • US$2m further investment into Brazilian Nickel as part of the investment by the US government into a wider financing to advance this significant development project
  • Given the implied undervaluation of the business, a £5m share buyback program was undertaken and completed in November 2020 at an average price of £1.09 providing an immediate return to shareholders
  • £4m of non-core asset disposals, mainly Berkeley Energia and Horizonte Minerals shares, to majority finance the share buyback
  • £5.7m reinvested in LIORC in Q1 2020 which yielded 14% on investment throughout 2020, and £15.2m LIORC disposal in December 2020, generating a profit of £1.9m
  • £47.4m further LIORC disposals in Q1 2021 as part of the Voisey’s Bay financing, resulting in total disposals of £62.6m which generated an overall return on investment of 60%

Dividend

  • Recommended final dividend for 2020 of 3.75p, which will take the total dividend for 2020 to 9p per share (2019: 9p)
  • Looking ahead, we will be developing our capital allocation policy to take into account the balance between attractive shareholder returns, balance sheet discipline and growth, which is essential for the long-term future of the business
  • We will continue to pay interim quarterly dividends at the rate of 1.75p per quarter, with the final dividend for 2021 to be determined based on results for the year and growth opportunities executed or being progressed
  • Payment of the final dividend will be made on 18 August 2021 to shareholders on the register on 9 July 2021 with the shares going ex-dividend on 8 July 2021

Outlook

  • The outlook for most commodities looks favourable for the near-term with increased government investment likely globally as a fiscal response to COVID-19
  • The Voisey’s Bay transaction is expected to significantly alter the Group’s revenue profile composition in 2021
  • The Group’s exposure to base metals has increased to over 60% following the Voisey’s Bay transaction, with the outlook for base and battery metals looking favourable for the year ahead
  • Kestrel volumes are expected to remain at similar overall levels in 2021, although the gradual reduction of the percentage of production sourced from within the Group’s private royalty land is expected to commence in H2 2021
  • Maracás Menchen operator targeting increased activity in the year ahead with increased premium vanadium product sales being targeted and the sale of bi-products now underway
  • The Group has an active pipeline and financial flexibility to continue to add to its high quality royalty and streaming portfolio

 
Julian Treger, Chief Executive Officer of Anglo Pacific, commented:
“Anglo Pacific is a very different business to what I reported on this time twelve months ago. We have, with the Voisey’s Bay cobalt stream acquisition, fundamentally repositioned our portfolio towards materials vital in providing cleaner energy for the future whilst ensuring that the Group replaces its Kestrel revenue ahead of time. This is immediately evident on our balance sheet where these materials now account for over 60% of our royalty and streaming assets.
Operationally our portfolio has performed well during the year considering the challenges presented to the industry by COVID-19, demonstrating the quality of the investment projects. The reduction in our royalty revenue during 2020 to £34.0m however, highlighted how important it was to act decisively to reduce our dependence on one single asset and commodity. The coal markets, coking coal in particular, had a turbulent year caused in large part by the closure of Indian ports and the knock-on impact of an over supplied seaborne market. Although prices recovered somewhat in early 2021, prices for coking coal remain subdued whilst thermal coal has rallied thus far this year. Our clear ambition is to reduce our coal exposure over the coming years through the acquisition of additional royalties and streams focussed on greener materials.
Although we are delighted with the quality, size and sustainability profile of the Voisey’s Bay acquisition, the job is not done. We are determined to build on the momentum of this transaction to increase our base and battery metals exposure further over the course of 2021 and are working on a number of opportunities.
The wider market for base metals and strategic minerals looks favourable. The globally co-ordinated, planned infrastructure investment, as a kick start to economies post COVID-19, looks set to benefit these commodities. The movement towards the electrification of automobiles appears to be gathering pace, with an increasing number of manufacturers committing to this path and setting ambitious timetables. We also saw the US government invest directly into our Brazilian Nickel project, which is a clear sign that western countries are looking to secure vital access to strategic minerals. In the meantime, it is clear that future supply will not meet the excess demand and it is likely we will see prices remain at elevated levels.
We look forward to the remainder of the year with cautious optimism and with prospects to add further growth to our business. We were delighted with the response to our recent equity raise and the support from our existing and new shareholders to the transaction was overwhelmingly positive. We remain committed to delivering value for all stakeholders in the years ahead.
Finally, I would once again like to thank our employees and directors for adjusting so well to life in a COVID-19 environment. We know that it has been challenging but the way in which our team has adapted to this and delivered the largest and most important acquisition in our history whilst working remotely has been a phenomenal achievement.”
1 Adjusted earnings/(loss) represents the Group’s underlying operating performance from core activities.  Adjusted earnings/(loss) is the profit/(loss) attributable to equity holders less all valuation movements, non-cash impairments and amortisation charges (which are non-cash IFRS adjustments that arise primarily due to changes in commodity prices), finance costs, any associated deferred tax and any profit or loss on non-core asset disposals as these are not expected to be ongoing.
2 Free cash flow is the net increase/(decrease) in cash and cash equivalents prior to core acquisitions, equity raising and changes in the level of borrowings.
Analyst and Investor presentation
There will be an analyst and investor presentation via conference call and webcast at 9:30am (BST) on 14 April 2021. The presentation will be hosted by Julian Treger (CEO), Kevin Flynn (CFO) and Marc Bishop Lafleche (Chief Investment Officer).
Please join the event 5-10 minutes prior to scheduled start time. When prompted, provide the confirmation code or event title:

Event Conference Title Anglo Pacific – 2020 Results Presentation
Time Zone Dublin, Edinburgh, Lisbon, London
Start Time/Date 09:30 Tuesday, 14 April 2021
Duration 60 minutes
Location Phone Number  
Dial-in +44 (0)330 336 9434  
Confirmation Code 5193638  
Webcast Link https://webcasting.brrmedia.co.uk/broadcast/606497ae560fbf10fcc505ea  

For a full copy of this release please click here
For a copy of the 2020 Annual Report and Accounts please click here
To view the supporting presentation please click here

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