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Anglo Pacific Group posts first half jump in royalty income and free cash flow

Last updated: 03:10 23 Aug 2017 EDT, First published: 02:42 23 Aug 2017 EDT

coal
Anglo Pacific saw increased volume in mined coal at the Kestrel project in Australia

Anglo Pacific Group PLC (LON:APF) said it made a “very strong” start to the year after free cash flow and royalty income surged in the first half.

The mining royalty business reported a 300% jump in free cash flow to £18.9mln in the six months ended 30 June, compared to the same period a year earlier, including an impact of the Denison financing arrangement of £3.3bn.

WATCH: Significant income, cash flow and profits growth in first half for Anglo Pacific Group

Royalty income shot up 295% to £16.1mln with a record performance at the Maracás Menchen project in Brazil due to strong production and a significant improvement in vanadium prices to an average of US$5.46 per pound from US$3.15 last year.

Anglo has a 2% net smelter return royalty on all mineral products sold from the project to which the royalty interest relates.

Kestrel mine supported by rebound in coking coal price

Royalty income was also boosted by a favourable exchange rate and an increase in mining within the company’s private royalty land at the Kestrel underground coal mine in Queensland, Australia.

“It is pleasing to see that this increased volume in mined coal that is subject to the group's royalty has coincided with a strong rebound in the coking coal price,” said chief executive Julian Treger in a statement.

“This, along with the contribution from the rest of the portfolio and the recent Denison financing arrangement, has seen us post a doubling of income over the last two years and a similar outcome is expected this year.”

However, the Kestrel valuation dropped 8% to £107.5mln at June 2017 from £116.9mln at the beginning of the year, primarily as a result of resource depletion and forward pricing assumptions.

READ: Anglo Pacific Group reveals steep rise in royalty income

Anglo Pacific's earnings soar 

Adjusted earnings for the period came to £12.9mln, up 438% on the previous year.

The company declared an interim dividend of 3p per share as it ended the period debt free after repaying all its loans following the receipt of royalty income in the second quarter and paying a 2016 final dividend. In June, Anglo said it would be making quarterly dividend payments.

Anglo had net assets of £209.6mln at the end of the period, compared to £210.1mln on 31 December, equating to net assets per share of 116p, down from 124p.  

“Anglo Pacific has had a very strong start to 2017, which has seen us add to our portfolio with the Denison financing arrangement, report significant further increases in royalty revenue, and become debt free,” Treger said.

“This gave us the confidence to implement the payment of our dividend on a quarterly basis, to match the timing of our quarterly revenue, and also to accelerate the timing of dividend payments post declaration.”

Treger added that the company has access to between US$30.0-US$40.0mln of cash and borrowing facilities for further royalty investments, which will be “very much the focus” for the second half of the year.

WATCH: Zak Mir: Anglo Pacific Group looking at 150p

Shore Capital analysts said: “For the second half, Anglo Pacific’s focus will continue to be on adding further royalties to its portfolio. Given its revolving credit facility, relatively strong coking coal and vanadium prices and a relatively weak pound, we see Anglo Pacific as being well-positioned in this respect.”

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