Acquisition of Gross Revenue Royalty
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the provisions of The Companies (Guernsey) Law, 2008 as amended)
1 February 2019
Acquisition of 0.75% Gross Revenue Royalty ("GRR") and option to acquire an additional 0.25% GRR (the "Royalties") on the metallurgical coal assets of Futura Resources Limited ("Futura") in Queensland, Australia
Baker Steel Resources Trust Limited (the "Company") is pleased to announce the acquisition of a 0.75% GRR over the future production of coal from the Wilton and Fairhill properties in Queensland, Australia for A$6 million, including the option to acquire an additional 0.25% GRR for a further A$2 million, exercisable by the Company at any time up to 45 days following the production of 2 million tonnes of saleable coal from the properties.
The Wilton and Fairhill properties subject to the Royalties contain significant JORC resources of 2.6 billion tonnes of coal, of which 738 million tonnes are less than 100m below surface. Production from Wilton is expected to commence mid-2019, with first royalty payments made to the Company on a quarterly basis thereafter. Fairhill production is scheduled to commence in 2020 and then aggregate coal production will ramp-up to a targeted sustainable level of 2.5milliontonnes of coal per annum of saleable processed coal by 2021/2 for at least 25 years.
At consensus long term average prices for metallurgical and thermal coal, the Royalties (assuming the option is exercised and therefore a 1% GRR) are anticipated to generate around A$3.5m per year for the Company before tax.
The Wilton and Fairhill properties are 100% owned by Futura, and the high quality metallurgical and thermal coal produced is planned to be processed at the nearby Gregory Crinum coal washplant which is in the process of being acquired by Sojitz from the BHP Mitsubishi Alliance, before being transported by existing rail infrastructure to the Queensland coast and the export markets.
The shallow open-pittable nature of the deposits supports low operating costs, with the projects expected to be in the lowest quartile of global metallurgical coal operating costs and therefore sustainable through any future cyclical downturn in coking coal prices. The markets for both metallurgical and thermal coal have been well above consensus long term average prices in recent times. Whilst in the medium to long term the decarbonisation trend may curb thermal coal demand, metallurgical coal is an essential component of steel making and long-term fundamentals appear supportive for demand and pricing. Around 60% of the coal sold by tonnage will be for the metallurgical market and 40% for the thermal market. Metallurgical coal sales are anticipated to represent around 75% of revenues, given the typical price premium for metallurgical coal.
In December 2017 the Company invested A$10m in Futura via a convertible loan note (representing 12.5% NAV at 31 December 2018), to finance the preparatory works for production from the Wilton and Fairhill properties. Good progress has been made, and discussions are well advanced with lenders for the finance to bring the properties into production.
The Company's acquisition of the Royalties is in line with its strategy to add attractive investments to its portfolio which can also generate meaningful income supportive of the returns policy to shareholders and is the second significant royalty asset to be acquired by the Company after the Net Smelter Royalty on the Prognoz silver asset held through Polar Acquisition Limited.
Pro-forma 31 December 2018, the initial Futura Royalty holding would represent 4.9% of NAV.
Further details of the Company and its investments are available on the Company's website www.bakersteelresourcestrust.com
Baker Steel Resources Trust Limited +44 20 7389 8237
Numis Securities Limited +44 20 7260 1000
David Benda (corporate)
James Glass (sales)
The Net Asset Value ("NAV") figure stated is based on unaudited estimated valuations of the underlying investments and not necessarily based on observable inputs. Such estimates are not subject to any independent verification or other due diligence and may not comply with generally accepted accounting practices or other generally accepted valuation principles. In addition, some estimated valuations are based on the latest available information which may relate to some time before the date set out above.
Accordingly, no reliance should be placed on such estimated valuations and they should only be taken as an indicative guide. Other risk factors which may be relevant to the NAV figure are set out in the Company's Prospectus dated 26 January 2015.
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