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US$185 million copper and nickel royalty portfolio acquisition from South32 - Anglo Pacific Group

US$185 million copper and nickel royalty portfolio acquisition from South32

Reinforces position as the leading global royalty and streaming company focused on future-facing commodities

Anglo Pacific Group PLC (“Anglo Pacific”, the “Company”, the “Group”) (LSE: APF, TSX: APY) has agreed to acquire a high-quality portfolio of royalties over advanced development stage copper and nickel projects from South32 Royalty Investments Pty Ltd (“South32”) for a fixed consideration of US$185 million with further contingent consideration of up to US$15 million.

The transaction further reinforces Anglo Pacific’s position as the leading royalty and streaming company focused on future-facing commodities that are critical to achieving the energy transition required to support a more sustainable world. The acquisition of this portfolio provides compelling growth and complements the Group’s substantial weighting to income producing assets.

The initial consideration comprises a US$47.6 million cash payment along with an US$82.4 million share issuance on completion to South32, which will become a 16.9% shareholder in the enlarged business. In addition, the Company will make six quarterly cash payments totalling US$55 million, to be paid in equal instalments over the next 18 months. These will be largely self-financed by cash flow generated from the Group’s current asset portfolio.

The Group has agreed with its lending syndicate to maintain the facility at US$150 million without the previously scheduled US$25 million facility step down which was due in August 2022. The Group has also agreed a US$50 million accordion feature for future acquisitions.

 

Transaction Highlights:

  • Reinforces Anglo Pacific as the leading future-facing commodities royalty and streaming company: Almost 100% exposure to copper, nickel, cobalt, and other future-facing commodities following the run-off of the Group’s metallurgical coal exposure, anticipated in 2026.
  • World-class assets and operators: West Musgrave project in Western Australia, owned by OZ Minerals Limited (“OZ Minerals”), and the Santo Domingo project in Chile, owned by Capstone Copper Corp. (“Capstone Copper”), enhance the Company’s exposure to long-life, low-cost assets located in well-established mining jurisdictions, operated by well-regarded and well-capitalised counterparties. This is the Group’s second source of royalty exposure to a Capstone Copper asset, building on the strong existing partnership.
  • Compelling growth profile: Repositions the portfolio and, in conjunction with the Piauí and Incoa projects, provides a platform for high-quality, sustainable cash flow growth with line of sight on a total portfolio contribution of over US$100 million per annum. The transaction is expected to be highly accretive over the medium-term.
  • Strong underlying fundamentals: Long-term copper and nickel supply and demand dynamics are strong, with significant copper and nickel demand growth expected to be required to achieve global net zero commitments.
  • Enhanced sustainability profile: Satisfies robust sustainability investment criteria. Capstone Copper and OZ Minerals are well-regarded operators with a strong sustainability focus, environmental track record, an emphasis on creating shared value with local communities, and established governance frameworks.
  • Balance sheet strength: Combination of US$82.4 million shares consideration and US$55 million of committed deferred cash payments to be part funded by Kestrel royalty income preserving the Company’s strong balance sheet and ability to fund further growth.

The royalty portfolio acquired includes:

  • A 2.0% net smelter return (“NSR”) royalty on the West Musgrave copper and nickel project in Australia. Average annual production is expected to be 26,000 tonnes of nickel and 32,000 tonnes of copper with first production targeted as early as 2024. Portfolio contribution at steady state production is expected to be US$10-15 million (based on long-term consensus pricing).
  • A 2.0% NSR royalty on the Santo Domingo, fully permitted, copper project in Chile. Average annual life of mine production is expected to be approximately 140 million pounds of copper, 4.2 million tonnes of 65% pellet feed iron ore concentrate and 10.4 million pounds of cobalt. The Company’s royalty area covers the highest copper grade portion of the mine plan which is expected to be mined during the initial 6 to 7 years of production. Capstone Copper is currently guiding to initial production between 2024 and 2026. Portfolio contribution at steady state production is expected to be US$20-35 million (based on long-term consensus pricing).
  • A 1.5% realised value royalty on the Nifty copper mine in Western Australia, owned by Cyprium Metals Limited (“Cyprium”). This is a restart of an existing mine and production is targeted to recommence in H2 2023. Portfolio contribution at steady state production is expected to be US$1-3 million (based on long-term consensus pricing).
  • A 5.0% NSR royalty on the producing Carlota copper mine in Arizona, owned by KGHM Polska Miedź S.A. (“KGHM”). Production in 2021 was 5.5 kt of copper cathode and final production is expected in 2024.

 

Marc Bishop Lafleche, Chief Executive Officer of Anglo Pacific, commented:

“Anglo Pacific is now firmly positioned as the leading, future-facing commodities royalty and streaming company with copper, nickel and cobalt at the core of its commodity exposure. The decarbonisation of the global economy will be very metal intensive, with sizable copper and nickel supply deficits expected to emerge over the next decade. We believe this is an attractive copper and nickel entry point with substantial commodity price upside potential, all the while meeting our disciplined approach to acquisitions and robust sustainability criteria.

“This transaction transforms the Group’s medium-term income growth profile. The US$55 million deferred consideration to be paid over the next 18 months will allow the Group to recycle record levels of metallurgical coal cash flows to fund the acquisition. The modifications we have made to our borrowing facility, along with the deferred structure of the consideration, ensures the Group remains well capitalised for further acquisitions.

“South32 will hold an approximate 16.9% stake in Anglo Pacific post transaction completion, demonstrating conviction in the outlook for our existing business, the acquired royalty portfolio, and our proven ability to deliver shareholder value. We are delighted to welcome South32 as a shareholder.”

 

Graham Kerr, Chief Executive Officer of South32, commented:

“The sale of these royalties unlocks further value from South32’s portfolio. The transaction will realise upfront and future cash payments for South32 while retaining our exposure to these base metals royalties through a shareholding in Anglo Pacific. We look forward to continuing our relationship with Anglo Pacific.”

 

Analyst and Investor Presentation

There will be an analyst and investor acquisition presentation webcast at 9am (BST) on 12 July 2022. The presentation will be hosted by Marc Bishop Lafleche (CEO) and Kevin Flynn (CFO).

Please join the event 5-10 minutes prior to the scheduled start time. When prompted, provide the confirmation code or event title.

Event Conference Title Anglo Pacific – US$185 million copper and nickel royalty portfolio acquisition
Time Zone Dublin, Edinburgh, Lisbon, London
Start Time/Date 9am Tuesday 12 July 2022
Duration

Webcast Link      

60 minutes

https://stream.brrmedia.co.uk/broadcast/62c7eb61d161177b45789ef3

Transaction Structure

 The transaction includes a fixed consideration of US$185 million which will be settled as follows:

  • US$47.6 million in cash payable on completion of the transaction.
  • US$82.4 million to be satisfied through the Company issuing 43,622,091 new ordinary shares (the “Consideration Shares”) at 154p per share (calculated based on 30-day volume weighted average price), to South32 on closing of the transaction The Consideration Shares will represent approximately 16.9% of the enlarged, issued share capital of the Company.
  • Deferred cash consideration totalling US$55 million to be paid in six equal quarterly instalments with the first instalment due in October 2022 and the final instalment due in January 2024. This will enable the continued recycling of Kestrel cash flows into new, future-facing commodities.

The transaction also includes contingent consideration of up to US$15 million, which may be payable subject to future nickel prices and minimum production levels at West Musgrave post commencement of production.

South32 has entered into a relationship agreement with the Company which, conditional on admission of the Consideration Shares, will grant South32 the right to appoint a director to the Board of the Company. The relationship agreement (including the appointment right) will terminate if South32 shareholding falls below 10% of the Group’s issued share capital. South32 will be subject to lock-in arrangements pursuant to which they have agreed not to dispose of any interests in any of the Consideration Shares for a nine-month period following admission (subject to customary exceptions). It is the Company’s understanding that South32 intends to be a supportive, long-term shareholder.

The Acquisition is expected to close in the second half of July 2022.

For a full copy of this release please click here

To register for the investor and analyst presentation, hosted by Marc Bishop Lafleche (CEO) and Kevin Flynn (CFO) at 9am BST on 12 July 2022, please click here