Anglo Pacific Group PLC Announces Results for the year ended 31 December 2018

LONDON, UK / ACCESSWIRE / March 27, 2019 / 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 2018 and the publication of its audited 2018 Annual Report and Accounts. These are available on the Group’s website at and on SEDAR at The following statement should be read in conjunction with the audited financial statements.

















Maracás Menchen












Four Mile












LIORC dividends


Interest – McClean Lake & Jogjakarta






related revenue








Principal repayment – McClean Lake**



portfolio contribution






* 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


  • Record £46.1m in royalty related revenue, an increase of 16% on the previous record of £39.6m earned in 2017
  • Overheads (excluding share-based payments) in line with 2017
  • 21% increase in operating profit to £37.1m (2017: £30.6m)
  • Tax losses utilised in full during H1 2018 resulting in an effective tax rate for the year of 25% (2017: 9%) based on adjusted earnings
  • 7% increase in adjusted earnings1 per share to 18.02p (2017: 16.82p)
  • 14% increase in proposed total dividend for the year to 8p per share (2017: 7p)
  • Dividend cover of 2.25x (2017: 2.4x) – reflecting the higher dividend for 2018
  • Free cash flow2 per share of 22.28p, largely in line with the 23.62p generated in 2017
  • Net assets largely unchanged at £218m (2017: £219m)
  • Net debt at the year-end of £3.1m (2017: net cash £8.1m) reflecting the £38.4m LIORC acquisition completed in H2 2018 and £12.9m dividends paid
  • Returned to a net cash position of at the end of January 2019


  • 13% increase in royalty income from Kestrel reflected strength of coal prices as volumes attributable to our private royalty land were stable at 4.8Mt
  • Maracás Menchen became the Group’s second largest source of revenue in 2018, following a significant increase in the vanadium price during H2 2018
  • Maiden contribution of £1.9m from Labrador Iron Ore Royalty Corp (“LIORC”) which was acquired in H2 2018, implies a yield of ~10%
  • £38.4m LIORC acquisition undertaken in H2 2018, financed through available bank facilities
  • Refinanced and upsized the previous US$30m borrowing facility with a new US$60m facility which includes a further US$30m accordion feature providing the Group with bank facilities of up to US$90m for acquisitions


  • Significant volume growth expected from Kestrel following the recent announcement by Adaro indicating a target increase in volume of 40% in 2019
  • Further £1m investment in LIORC in January 2019, taking our total ownership in LIORC to 4.4%, total investment to C$67.9m with a current market value of C$82.1m
  • Q1 2019 dividend from LIORC of C$1.05 per share, which included a C$0.80 per share special dividend, following the distribution of excess cash retained during H2 2018
  • ~£78m (~US$100m) of available bank facilities and cash available to finance growth

Julian Treger, Chief Executive Officer of Anglo Pacific,

“2018 was the second year in a row in which we reported
record contribution from our royalty portfolio, and the recent announcement
from Adaro suggests that there is a significant increase in volume to come at
Kestrel in 2019. This led us to propose a 14% increase in the total dividend
for 2018 to 8p.

I am particularly pleased to highlight the contribution from
Maracás, now our second largest royalty, and LIORC, our most recent addition,
which demonstrates the progress we have been making in building a diversified
portfolio whilst reducing our dependence on the Kestrel royalty. LIORC
generated £1.9m in royalty related income since its acquisition in H2 2018,
implying an annualised yield of ~10%.

Based on 2018 revenue, we have now successfully increased revenues
by approximately £15m annually over the last four years. We have also
systematically strengthened the balance sheet, senior management and the Board
which together provides the Company with added firepower to grow and execute
accretive transactions. This is good progress, but we have more to do and our
target for 2019 is accelerating the rate of our growth.

Growth will not, however, come at the expense of quality,
diligence and prudence in the projects we choose to support. To this extent, we
will continue to focus on projects which produce premium materials, which we
believe will continue to command a higher premium over time.

In addition to product quality, we will also maintain a strict
focus on how the projects are operated and managed from an ESG perspective and
we will only support those projects which are being run ethically and
responsibly. Our annual report contains further information in relation to our
initiatives in this area during 2018 and how we see this evolving in the years
ahead. Although Anglo Pacific is not an operator, our investments are in
natural resources projects, and we continue to believe in the ongoing need for
high-quality, low polluting products which are operated in a responsible manner
by experienced management teams.

The backdrop for raising capital for
natural resources companies continues to be challenging given the scarcity of
capital in the sector, however we feel confident that we can continue to make
investments and grow our portfolio in a meaningful way in 2019. With the owners
of Kestrel targeting a 40% increase in volume in 2019, along with having access
to ~£78m (~US$100m) of liquidity on our balance sheet for making additional
quality investments, we are in a very strong position from which to grow in the
year ahead.”

1Adjusted 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.

2Free 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.


Anglo Pacific made significant progress in 2018, which lays the foundations to fund further growth. In 2019, we have a firm expectation to generate organic growth from the Company’s royalty portfolio which should, subject to prevailing commodity prices, result in strong earnings and cash generation. We continue to see traditional capital finance for new mining projects remaining constrained in current markets, and, whilst this presents challenges for small to medium sized miners, this conversely presents increasing opportunities and demand for royalties. This should provide Anglo Pacific with opportunities to add attractive assets to its portfolio. Growth and delivering value remain a focus for the Company in 2019 and the years following.

Analyst and Investor presentation

There will be an analyst and investor presentation via conference call and webcast at 9:30am (GMT) on 27 March 2018. The presentation will be hosted by Julian Treger (CEO), Kevin Flynn (CFO) and Juan Alvarez (Head of Investments).

Dial in number(s)

United Kingdom Toll-Free: 08003589473 PIN: 41399555#

United Kingdom Toll: +44 3333000804 PIN: 41399555#

International dial in numbers link

Webcast link

For further information:

Pacific Group PLC

+44 (0) 20 3435 7400

Julian Treger – Chief Executive Officer

Kevin Flynn – Chief Financial Officer and Company Secretary

Juan Alvarez – Head of Investments



+44 (0) 20 3207 7800

Matthew Armitt / Detlir Elezi

BMO Capital Markets Limited

+44 (0) 20 7664 8020

Jeffrey Couch / Tom Rider / Neil Elliot

Peel Hunt LLP

+44 (0) 20 7418 8900

Ross Allister / James Bavister / David McKeown


+44 (0) 20 3757 4997

Gordon Poole / Owen Roberts / James Crothers

to Editors

Anglo Pacific

Anglo Pacific Group PLC is a global natural resources royalty and streaming company. The Company’s strategy is to develop a leading international diversified royalty and streaming company with a portfolio centred on base metals and bulk materials, focusing on accelerating income growth through acquiring royalties on projects that are currently cash flow generating or are expected to be within the next 24 months, as well as investment in earlier stage royalties. It is a continuing policy of the Company to pay a substantial portion of these royalties to shareholders as dividends.

Cautionary statement on forward-looking statements and related

Certain statements in this announcement, other than statements of historical fact, are forward-looking statements based on certain assumptions and reflect the Group’s expectations and views of future events. Forward-looking statements (which include the phrase ‘forward-looking information’ within the meaning of Canadian securities legislation) are provided for the purposes of assisting the reader in understanding the Group’s financial position and results of operations as at and for the periods ended on certain dates, and to present information about management’s current expectations and plans relating to the future. Readers are cautioned that such forward-looking statements may not be appropriate for other purposes than outlined in this announcement. These statements may include, without limitation, statements regarding the operations, business, financial condition, expected financial results, cash flow, requirement for and terms of additional financing, performance, prospects, opportunities, priorities, targets, goals, objectives, strategies, growth and outlook of the Group including the outlook for the markets and economies in which the Group operates, costs and timing of making new investments, mineral reserve and resources estimates, estimates of future production, production costs and revenue, future demand for and prices of precious and base metals and other commodities, for the current fiscal year and subsequent periods.

Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as ‘expects’, ‘anticipates’, ‘plans’, ‘believes’, ‘estimates’, ‘seeks’, ‘intends’, ‘targets’, ‘projects’, ‘forecasts’, or negative versions thereof and other similar expressions, or future or conditional verbs such as ‘may’, ‘will’, ‘should’, ‘would’ and ‘could’. Forward-looking statements are based upon certain material factors that were applied in drawing a conclusion or making a forecast or projection, including assumptions and analyses made by the Group in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that are believed to be appropriate in the circumstances. The material factors and assumptions upon which such forward-looking statements are based include: the stability of the global economy; stability of local governments and legislative background; the relative stability of interest rates, the equity and debt markets continuing to provide access to capital; the continuing of ongoing operations of the properties underlying the Group’s portfolio of royalties and investments in a manner consistent with past practice; the accuracy of public statements and disclosures (including feasibility studies, estimates of reserve, resource, production, grades, mine life, and cash cost) made by the owners and operators of such underlying properties; accuracy of the information provided to the Group by the owners and operators of such underlying properties; no material adverse change in the price of the commodities produced from the properties underlying the Group’s portfolio of royalties and investments; no material adverse change in foreign exchange exposure; no adverse development in respect of any property in which the Group holds a royalty or other interest, including but not limited to unusual or unexpected geological formations and natural disasters; successful completion of new development projects; planned expansions or additional projects being within the timelines anticipated and at anticipated production levels; and maintenance of mining title.

Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions, which could cause actual results to differ materially from those anticipated, estimated or intended in the forward-looking statements. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. No statement in this communication is intended to be, nor should it be construed as, a profit forecast or a profit estimate. By its nature, this information is subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate; that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of material factors, many of which are beyond the Group’s control, affect the operations, performance and results of the Group, its businesses, royalties and investments, and could cause actual results to differ materially from those suggested any forward-looking information. Such risks and uncertainties include, but are not limited to current global financial conditions, investment portfolio and associated risk, adverse development risk, financial viability and operational effectiveness of owners and operators of the relevant properties underlying the Group’s portfolio of royalties and investments, royalties and investments subject to other rights, and contractual terms not being honoured, together with those risks identified in the ‘Principal Risks and Uncertainties’ section of our most recent Annual Report, which is available on our website. If any such risks actually occur, they could materially adversely affect the Group’s business, financial condition or results of operations. Readers are cautioned that the list of factors noticed in the ‘Principal Risks and Uncertainties’ section of our most recent Annual Report is not exhaustive of the factors that may affect the Group’s forward-looking statements. Readers are also cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements.

This announcement also contains forward-looking information contained and derived from publicly available information regarding properties and mining operations owned by third parties. The Group’s management relies upon this forward-looking information in its estimates, projections, plans, and analysis. Although the forward-looking statements contained in this announcement are based upon what the Group believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. The forward-looking statements made in this announcement relate only to events or information as of the date on which the statements are made and, except as specifically required by applicable laws, listing rules and other regulations, the Group undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Third party information

As a royalty and streaming company, the Group often has limited, if any, access to non-public scientific and technical information in respect of the properties underlying its portfolio of royalties and investments, or such information is subject to confidentiality provisions. As such, in preparing this announcement, the Group has largely relied upon the public disclosures of the owners and operators of the properties underlying its portfolio of royalties and investments, as available at the date of this announcement. This announcement contains information and statement relating to the Kestrel mine that are based on certain estimates and forecasts that have been provided to the Group by Kestrel Coal Pty Ltd (“KCPL”), the accuracy of which KCPL does not warrant and on which readers may not rely.


2018 has been another strong year for Anglo Pacific with record revenue flowing through to earnings and cash flow. We expect 2019 to be an even stronger year for the Group, certainly in terms of volume growth, following the new owner of Kestrel announcing plans to increase production by 40% in 2019. Taking the above into account, we have recommended a 14% increase in the dividend to 8p per share for the year. We enter 2019 in a very strong financial position with a renewed focus on growing our royalty portfolio and remain confident that our offering will continue to be appealing in what remains a very capital constrained sector.

It is perhaps timely to reflect on the mining industry, which is the focus of our investments. The recent tragic and fatal collapse of a tailings dam in Brazil is a stark reminder of the complex and challenging nature of mining and the need for the highest standards in respect of safety and the environment. The scale of the incident will, rightly, result in enhanced scrutiny on operators from regulatory bodies, governments, NGOs, lenders and investors in relation to safety and the use of best practice techniques, particularly when operating in close proximity to communities.

Such issues are a top priority for Anglo Pacific when undertaking due diligence. We take comfort from our track record thus far in the environmental, social and governance (‘ESG’) credentials of the operators we have supported. We will continue to do our utmost to be a force for positive action as we make investment decisions and work with the operators of the assets in our portfolio.

It is easy to forget the substantial positive contribution made by mining to society as a whole. The metals and minerals extracted are essential for our everyday existence in the developed world and also help the developing world advance and lift people out of poverty. As an industry, mining needs to do a better job at educating on, and communicating the benefits of the extractive sector. As an investor and believer in the sector, we will do our part as best we can.

in 2018

The Group saw its total portfolio contribution increase by 16% to £49.4m, buoyed by resilient commodity prices and a strong contribution from our most recent acquisitions. The Company executed £39.3m of royalty acquisitions in 2018 which added £2m to income in the second half. The acquisitions were financed organically by drawing on the Group’s borrowing facility, with the Group returning to a net cash position post year end. In addition, we took the opportunity to upsize and extend our borrowing facility on more favourable pricing terms, which now, when combined with existing cash resources, provides for ~£78m (~US$100m) of liquidity to finance further growth opportunities.

The higher commodity prices and revenues during the year translated directly into higher profits and cash generation. Operating profit increased to £37.1m from £30.6m in 2017.

Basic earnings per share were 15.97p compared with 5.88p in 2017. Stripping out non-cash items, we present an adjusted earnings measure which, we believe, more closely reflects the performance within management’s control. On this basis adjusted earnings per share were 18.02p (2017: 16.82p).


In light of the continued growth in our income, strong dividend cover and the prospect for further growth in 2019 we have recommended a 25% increase in the final dividend to 3.125p which, if approved by shareholders at the 2019 AGM, would result in total dividends for 2018 of 8p per share, a 14% increase on the 7p paid in 2017. We feel that this level of dividend rewards the continued support of our shareholders whilst allowing us to employ cash in growth opportunities. As we operate in a cyclical and often volatile sector, we have kept the quarterly dividend level of 1.625p unchanged and we will assess the total dividend level for 2019 when we announce our Q4 2019 trading update.

This implies dividend cover of around 2.5x, which is approximately the level we are targeting for 2019. Our intention is to continue to reinvest the bulk of our retained income in growth at this favourable stage of the cycle.

culture and governance

Anglo Pacific seeks to maintain the highest standards in all areas of its business. I believe this starts at the top and the Board sees it as a key part of its responsibility to set the right guidelines for the Group to operate to the highest ethical standards. We hold an annual strategy day and in 2018 included sessions on strategy, ESG, risk and board effectiveness. We work with industry experts where appropriate who bring an objective and impartial insight to how the Group approaches these areas.

While we acknowledge that we are not directly responsible for the operation of the underlying assets in our portfolio, we are committed to making the pursuit of best practice in ESG a high priority.


We were pleased to announce the appointment of Vanessa Dennett to our Board in November, following an extensive search process. Vanessa brings with her a wealth of transaction experience in the mining industry having held senior roles within Anglo American plc. Her commercial experience in negotiating and structuring transactions, investment process and corporate governance complements the finance and operational expertise of the Board. Vanessa has already made positive contributions to the Board and has proved a very helpful sounding board to our executive team and we look forward to her continued participation in the coming years.

The Directors possess different skills and, I believe, operate effectively in bringing a diversity of approach and experience to the overall activities of the Board and committees in determining strategy and providing guidance and oversight to management. As the Group develops, we will continue to evaluate the composition of the Board and refresh when appropriate.


Against a background of increasing signs of a global slowdown, concerns surrounding China’s debt burden and the US China trade war, along with rising US treasury yields, it was perhaps not surprising to see equity values fall at the end of 2018. Although we believe that small and mid-cap mining companies were underrated before this bearish sentiment, it suggests that the availability of capital to finance new mining projects will become even more scarce and the cost of borrowing will increase accordingly.

This should provide Anglo Pacific with opportunities to add attractive assets to its portfolio, especially as we, in turn, are not necessarily dependent on the equity markets to raise capital to finance such opportunities given our access to liquidity and the prospect for significant organic growth in 2019.


We expect 2019 to produce healthy organic growth from our royalty portfolio. This should, subject to prevailing commodity prices, result in another strong year of earnings and cash generation.

We believe there will be continued demand for royalty and alternative financing in the mining sector in 2019, given the shortage of and rising cost of capital facing the sector. Anglo Pacific is firmly focused on growth and has the balance sheet strength to continue to add to our portfolio of royalties.

2019 should be a busy year and I have no doubt that the dedicated, hardworking and experienced team led by Julian Treger is well placed to deliver our growth targets. I would like to thank the Board, the executive team and staff for their continued diligence and hard work.

On behalf of the Board



26 March 2019


Anglo Pacific continued to deliver on its strategy in 2018. Our portfolio generated a record contribution of £49.4m, representing a 16% increase on 2017. This is very pleasing especially as the consensus at the beginning of the year was forecasting a decline.

I would like to highlight that Maracás Menchen, the vanadium royalty which we acquired in 2014, is now our second largest royalty by revenue having generated £5.9m in royalties during 2018 compared to £2.0m in 2017.

We expect further organic growth to come in 2019, driven by plans for a 40% increase in volumes from Kestrel along with a full year of revenue from our investment in LIORC. The accelerated volumes expected from Kestrel should have a positive impact on free cash flow, but will also bring forward the point at which mining will leave the Group’s private royalty land. As such, the imperative is now firmly on reinvesting this cash flow to replace Kestrel’s income in the medium-term, and this is our firm focus for the year ahead.

record and experienced team

We have demonstrated our ability to successfully identify accretive royalty related assets over the past five years, having acquired royalties over the Narrabri and Maracás mines, together with an indirect interest in the royalty over the Iron Ore Company of Canada (‘IOC’) mines through our investment in LIORC. In addition, we have gained exposure to the Cigar Lake operation through a toll milling agreement. We have also added some longer-term growth opportunities to the portfolio through our investment in the Piauí and Cañariaco royalties.

The investment of ~£130m into the Group’s portfolio over the past five years could, subject to commodity prices, generate a sustainable £15m of annual revenue before development upside. This is a good start, but we feel now is the time to accelerate our rate of growth, and are in a strong financial position to do so, with ~£78m (~US$100m) of liquidity available to us.

The success of these investments has been achieved through the application of our investment criteria which aims to ensure that our new royalties are over projects which should continue to operate throughout the cycle. More recently, we have also targeted high-quality, lower polluting products in the belief that these should command more of a premium over time. It is gratifying to see this belief realised from the returns on our investments in LIORC (iron ore pellet), Narrabri (low ash, high energy thermal coal) and Maracás Menchen (vanadium).

Executing the Group’s strategy and applying our investment criteria is our very experienced senior management team, which has remained largely unchanged over the past five years and whose skill set covers all of our key diligence areas namely geology, corporate finance, structuring and tax. The skills of the management team are augmented by those of our Board, who bring a variety of further operational, M&A, corporate finance and corporate governance experience to the Group.

The combined breadth and depth of the senior management team and Board’s knowledge and experience has allowed the Group to assess a wide range of potential transactions across multiple jurisdictions and commodities. Given our growth ambitions, we are allocating more resources to our investment team in order to develop our pipeline and execute on deals in the year ahead.

Our people are our key assets and staff related expenses make up 64% of the Group’s total cost base. We operate in a very scalable business and it is interesting to note that our costs are virtually identical to those in 2014 even though our income has increased by ~12.5 times over that period.


The highlight of our acquisition strategy in 2018 was the purchase of our 4.29% stake in Labrador Iron Ore Royalty Corporation (LIORC), a publicly quoted royalty pass-through vehicle listed in Toronto. We increased our exposure to iron ore as we believe the industry dynamics have improved well beyond the general market perception and prices will be stronger for longer. Further, LIORC is focused at the high-quality end of the iron ore market and enjoys a favourable premium for its product. We also expected LIORC to produce yields of around ten percent which is very respectable for a mine in a premier jurisdiction operated by Rio Tinto.

We are pleased to report that in 2018 the income we received from LIORC exceeded our initial expectations and that the current market value of the investment is significantly above our cost.

Social and Governance

Although Anglo Pacific is not an operator, our role as a financier and supporter of the mining sector has put us in a position to appraise hundreds of royalty transactions each year and allowed us to see the full spectrum of ESG practices within the industry.

We have seen the mining industry be at the fore front of technological innovation through developments such as driverless trucks and trains. It has produced the commodities necessary to manufacture many products and gadgets today considered to be indispensable, together with providing the energy required to power the modern world. Many mining operations also uplift the communities in which they are located by providing employment, infrastructure, long-term development opportunities and increased prosperity.

The industry must communicate these benefits more effectively, and investment into the sector must be encouraged in order to provide those minerals and commodities which will continue to be needed. Projects and operations involving higher-quality, cleaner products which are operated to the highest possible standards of environmental and social responsibility are likely to attract capital in the first instance, and it is these projects which Anglo Pacific has looked to support in the recent past.

There is no doubt that the world will transition to more sustainable forms of energy generation but, in the short to medium-term, a quicker solution to a cleaner world is the use of higher quality lower polluting commodities; be it their chemical properties or the way in which they are extracted, operated and rehabilitated.

Given our exposure to such a diverse range of projects, and our track record of investing in those which would clearly fit in with the above criteria, we see a role for Anglo Pacific in being a conduit for investors who might otherwise not have a mandate to invest in the underlying mining projects directly. This is an initiative which we hope to be thought leaders in and explore in further detail in 2019. We will, of course, continue to hold ourselves accountable to such standards in our own investment activity.


The change in ownership of Kestrel during the year was a significant event for Anglo Pacific as it remains our dominant source of revenue. A consortium of EMR Capital, a well-known mining financier based in Australia, and Adaro Energy, a leading Indonesian producer of coal with over 26 years of experience in operating coal mines, completed their acquisition of the operation in Q3 2018.

The price which the consortium paid, US$2.25bn, was 50% higher than some commentators had been predicting. This signalled that the new owners would be keen to significantly increase production in the short-term. Indeed, Adaro suggested that they could, over a period of time, double production at Kestrel.

Having taken over operational control during Q3 2018, the new owners have begun work on their expansion plans. They have now stated that they are forecasting a 40% uplift in production volumes for 2019, which is far in excess of the levels which were previously achieved by Rio Tinto. This would be quite timely for Anglo Pacific as it coincides with a period in which virtually all mining will be taking place within the Group’s private royalty land, suggesting that there could be a material uplift in royalty income commencing in 2019, subject to commodity prices remaining stable.

We have actively engaged with Kestrel’s new operations team to better understand their plans for expanding production, and have undertaken a site visit to see for ourselves how they plan to achieve this and, although this seems on paper to be a stretch target, it is encouraging to see that the operating team are motivated to achieve this. We have also met with representatives from Adaro in Indonesia and look forward to a constructive and cordial working relationship with them going forward.

With the anticipated increase in production and our continued belief that the market for cleaner coal, such as that produced at Kestrel, will remain strong for the foreseeable future it is clear that Kestrel will remain the Group’s largest source of royalty income. It is worth noting however, that over the past five years, according to analysts who follow our Company, the proportion of our net asset value (NAV) attributed to Kestrel has fallen from 72% to 48% demonstrating our success in diversifying our asset base year by year and reducing our reliance on Kestrel.


Given our track record to date, we are confident that we can deliver on our growth ambitions. The mining sector continues to suffer from a scarcity of capital, particularly in the small to mid-cap segment, which is an area where we have seen a lot of deal flow in the past.

Conventional bank debt remains hard to come by for junior developers, and US dollar denominated debt has become more expensive following a series of increases in the US bank rate imposed by the Fed during 2018, as part of their reduction in quantitative easing.

Rising US interest rates have also impacted on the equity markets as the US 10-year treasury yield increased noticeably during 2018 and exceeded US inflation for the first time since the financial crisis. With the risk-free rate increasing, the premium required to invest elsewhere has also risen, resulting in the price of equities coming under pressure as the rate of return on safe haven investments rose.

The equity markets have also experienced a fundamental change over the past few years, with the growth of index funds leading to capital allocation being concentrated toward the largest companies. In the past we would have seen mining funds raise significant amounts of capital to invest in the sector. These funds had the expertise, discipline, patience and understanding needed to select and support new mining projects. The popularity of indexation is one factor which has caused this to change, with capital flowing to index funds, which by their nature tend to be passive and liquidity driven, often following algorithms rather than using industry expertise to evaluate and back investment decisions.

For mining, this has meant that any capital in the sector is predominantly being invested in the likes of Rio Tinto or BHP. This would not ordinarily be a problem if the majors were using this capital to invest in growth, which in the past would have led to investments and M&A at the junior end of the market. However, the majors now appear to be ex-growth, scarred by their acquisition sprees towards the end of the last decade. As such, equity capital flowing into the majors is now being distributed back to their shareholders through special dividends and share buy backs, which means in many instances capital is ultimately leaving the sector.

Given the scarcity of conventional debt and equity, and with mezzanine private equity financing solutions often being prohibitively expensive or dilutive, we would expect to see the demand for royalty financing to remain robust in the near-term, and our pipeline reflects this.

With a strong balance sheet, significant free cash-flow generation and access to some ~£78m (~US$100m) of liquidity we are now in a position whereby we can act quickly and opportunistically should circumstances demand.


2019 will be an interesting year for the global economy, with the threat of a slowdown in GDP growth in the US and potential recession in parts of Europe, the sustainability of Chinese growth given its debt levels and, of course, the ongoing uncertainty in relation to Brexit.

Despite the uncertainty facing the global economy, the outlook for the year ahead is positive for Anglo Pacific. We reported record income in 2018 and, absent significant volatility in commodity prices, we expect 2019 to show further organic growth from the portfolio.

With our dividend well covered, we expect to generate significant cash flow over the course of the year and with ample liquidity available, we are in a strong financial position to add to the growth that Anglo Pacific has delivered over the last five years.


Chief Executive Officer

26 March 2019

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SOURCE: Anglo Pacific Group PLC

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