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Anglo Pacific Group: QuickView

Published 06/12/2012, 01:51 PM
Updated 07/09/2023, 06:31 AM
Anglo Pacific Group (APF)

Investment Summary: Dividend Growth

The recent quarterly results declared significantly reduced royalty income as a result of a delayed ramp-up following a longwall move and poor weather at the Kestrel Coal mine. As a result Q112 royalty cashflow totalled 1.8p/share (Q111: 9.21p/share), and this news saw the company significantly marked down. Given that it retains a strong cash position and guides that the shortfall at Kestrel will be recovered later this year, we believe that the market may have reacted too strongly. Add to this the continuing growth of the royalty portfolio and the investment case remains strong.

Anglo Pacific Royalty Model
Anglo Pacific is a multi-commodity mining royalty and investment group. It focuses on royalties that offer exposure to commodity prices with no exposure to the operating cost inflation that is endemic across the industry. APF’s conservative investment strategy will result in a diverse portfolio with low exposure to political risk, thus offering a sustainable and growing dividend. The diversification of the portfolio is expected to improve as more royalties move to production.

Royalty Portfolio
The Rio Tinto operated Kestrel coal mine in Australia makes up a significant part of the producing portfolio, which includes Crinum Coal, Amapá Iron Ore and El Valle Gold and Copper. There are a further 16 exploration and development royalties across commodities including uranium, nickel, gold, PGMs, iron ore and chromite.

Weak Market Conditions Are A Positive
The current market conditions are a significant positive for APF and provide an opportunity for accelerated growth of the royalty portfolio. As equity and debt markets remain tight for mining projects, APF is in a position to use its cash balance (£20.9m) to invest in earnings accretive royalty streams from projects coming to production in the near term. To do so effectively the company is reliant upon the recovery of the Kestrel royalty income to provide the necessary cash.

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