Anglo Pacific Group plc (LON:APF) turned in a bumper set of full year results at the end of March, as the recovery in the mining sector began to hit its stride and the company’s judicious acquisition strategy starts to pay off in a serious way.
Royalty income from the Kestrel coal mine and other projects hit a record level of £37.4mln, an increase of 90% over the £19.7mln received last year.
In part, of course, that increase is a straightforward consequence of the greater number of active royalties that are now in the portfolio, and a greater measure of the company’s performance can be seen in the almost tripling of the free cash flow per share from 7.93p to 23.2p.
Accordingly, Anglo Pacific’s shares are trading on a cash flow multiple of around 6.5 or seven times, which is low for a royalty company and a result partly because in London there’s a paucity of peers to which the company can be compared.
And, with a 72% increase in adjusted earnings booked at 16.82p, up from the 9.76p delivered in the previous year, the dividend is now covered by almost 2.5 times.
All of which provides a very solid foundation for Anglo Pacific to build upon in the coming months and years.
Chief executive Julian Treger is confident the company will be able to up the number of deals it can do in a given calendar year, now that the mining market looks to have recovered its poise to some extent after long years of bearish sentiment, but even if there is more optimism around in mining, capital is still extremely scarce. And that’s where the real opportunity for Anglo Pacific comes in.
The company ended the year with cash on hand of £8.1mln, a figure that’s set to grow quarter-on-quarter as the royalty income continues to roll in. There’s also U$15mln available through what Treger describes as “non-core” equity holdings, and an unused credit facility of US$40mln.
However, Treger hopes to raise that facility to US$90mln before too long. All told, with a strong financial base and significant war chest, Anglo Pacific looks well set up to secure further royalties from companies looking for constructive ways to raise capital without diluting their own shareholders.
“The backdrop is very favourable,” says Treger.
“There continues to be a shortage of capital in the mining sector, and there’s a lot of demand.”
It’s helpful - to Anglo Pacific at least – that this time round the mining cycle isn’t co-ordinated.
“Some commodities are more fully valued than others,” says Treger.
Accordingly, Anglo Pacific will continue to take a selective approach.
Currently it holds cash generating royalties over coal projects in Australia, a gold project in Spain, a vanadium project in Brazil, as well as uranium royalties in the US and Australia. There’s also a royalty on the Berkeley Energia (LON:BKY) uranium mine in Spain, due to come on stream next year.
That’s already a good spread in terms of commodity and jurisdiction, but Treger is keen to broaden the company’s exposure to industrial metals.
“We want to grow in copper, nickel and zinc,” he says. “But it will be specific to opportunity.”
As to the more fashionable commodities like lithium and cobalt, it seems likely that Anglo Pacific will leave those alone for the moment. Treger reckons cobalt is a bit “overblown” and is not convinced of the long-term dynamics for lithium either.
But that aside, the company is open to opportunities and comfortable with the way it sits in the current market.
“I think that subject to hiccups we’re now in a market which has co-ordinated global growth, and that should be beneficial to industrial minerals,” says Treger.
“Having said that the rise of indexisation will lead to a paucity of capital for mining ventures, and money from the generalist funds is going into the larger capitalised companies. The small companies and even specialised funds are continuing to see outflows.”
And that sort of environment is one in which Anglo Pacific should thrive.
“There’s a lot of demand for financing and not much supply,” adds Treger. “So we hope to up the number of transactions we complete this year.”