TIDMAPF
RNS Number : 3718V
Anglo Pacific Group PLC
14 April 2021
News Release
14 April 2021
Anglo Pacific Group PLC
Results for the year ended 31 December 2020
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 2020, consistent with the
trading update published on 8 February 2021. The Company has also
published its audited 2020 Annual Report and Accounts, which are
available on the Group's website at www.anglopacificgroup.com and
on SEDAR at www.SEDAR.com . The following statement should be read
in conjunction with the audited financial statements.
The results for 2020 reflect the business before the completion
of the US$205m Voisey's Bay cobalt stream acquisition, announced on
12 March 2021, the Group's largest and most significant
transaction, setting Anglo Pacific on the road to become the
leading growth royalty and streaming company, focused on 21(st)
century commodities.
2020 Portfolio Highlights
202 0 YoY 2019 2018 2017 2016
GBPm % GBPm GBPm GBPm GBPm
--------------------------------------- ----- ------- ----- ----- ----- -----
Kestrel 18.1 (51)% 37.0 32.6 28.8 13.1
--------------------------------------- ----- ------- ----- ----- ----- -----
Maracás Menchen 0.5 (82)% 2.8 5.9 2.0 0.8
--------------------------------------- ----- ------- ----- ----- ----- -----
Narrabri 3.1 (23)% 4.0 3.5 4.9 4.3
--------------------------------------- ----- ------- ----- ----- ----- -----
Mantos Blancos 2.9 190% 1.0 - - -
--------------------------------------- ----- ------- ----- ----- ----- -----
Four Mile 0.4 33% 0.3 0.1 - 0.3
--------------------------------------- ----- ------- ----- ----- ----- -----
EVBC* - - 1.7 1.2
--------------------------------------- ----- ------- ----- ----- ----- -----
Royalty income 25.0 (44)% 45.1 42.1 37.4 19.7
--------------------------------------- ----- ------- ----- ----- ----- -----
Dividends - LIORC and Flowstream 7.2 (17)% 8.7 1.9 - -
--------------------------------------- ----- ------- ----- ----- ----- -----
I nterest - McClean Lake & Jogjakarta 1.8 (5)% 1.9 2.1 2.2 0.3
--------------------------------------- ----- ------- ----- ----- ----- -----
Royalty related revenue 34.0 (39%) 55.7 46.1 39.6 20.0
--------------------------------------- ----- ------- ----- ----- ----- -----
EVBC* 2.3 5% 2.2 2.0 - -
--------------------------------------- ----- ------- ----- ----- ----- -----
Principal repayment - McClean Lake** 0.7 (63)% 1.6 1.3 3.0 -
--------------------------------------- ----- ------- ----- ----- ----- -----
Total portfolio contribution 37.0 ( 38)% 59.5 49.4 42.6 20.0
--------------------------------------- ----- ------- ----- ----- ----- -----
* 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 GBP1.8m
relating to tolling receipts from H2 2016
Financial Highlights
-- Results reflect lower production levels from Kestrel compared
to the record level produced in 2019. 2020 volumes were 11% lower
at 5.8mt which are expected to be the level the operators are
targeting in the near-term
-- Coal prices were significantly impacted by the closure of
Indian ports for a period in mid-2020 as a measure to contain the
outbreak of COVID-19
-- Royalty income reflects a US$1.3m charge at Maracás Menchen
due to monies owed to Glencore upon the termination of its offtake
agreement
-- GBP34.0m in royalty related revenue (2019: GBP55.7m)
-- Total portfolio contribution of GBP37.0m (2019: GBP59.5m)
-- Operating profit of GBP22.1m (2019: GBP44.8m)
-- Loss after tax, which includes valuation and impairment
charges, of GBP18.6m (2019: profit after tax GBP29.0m) which
reflects a GBP44.2m valuation charge against Kestrel and
impairments of GBP3.4m
-- Basic loss per share of 10.31p (2019: earnings of 16.06p)
-- Adjusted earnings(1) per share of 12.35p (2019: 20.41p)
-- Net debt at the year-end of GBP24.3m (2019: GBP28.8m)
benefitting from the GBP15.2m of LIORC disposals made in December
2020, at a profit of GBP1.9m, in preparation for the financing of
the Voisey's Bay stream acquisition
-- Kestrel represented 17% of the Group's royalty assets on the
balance sheet (2019: 26%) expected to reduce further to 12% upon
the acquisition of the Voisey's Bay cobalt stream in March 2021
Operating Highlights
-- Minimal operational disruption caused by COVID-19 during 2020 across our portfolio
-- Kestrel operator reduced production from its record levels in
2019, with production expected to be maintained at these levels in
2021
-- Record sales achieved at Maracás Menchen in Q4 2020 and
further growth expected in 2021 following plant expansion and
targeted biproduct sales
-- Another strong performance from LIORC with total dividends
for 2020 of C$3.05 (2019: C$4.00) despite planned capex investment
at the underlying operation impacting the special dividend in
2020
-- 10% decrease in operating expenses to GBP6.4m in 2020 despite
increased costs associated with the Four Mile legal dispute. In
relation to the latter, we are hopeful that there will be some
tangible progress made to this case over the coming months
Investment highlights
-- US$205m acquisition of the Voisey's Bay cobalt stream
completed in March 2021, the Group's largest and most significant
transaction, setting Anglo Pacific on the road to become the
leading growth royalty and streaming company, focused on base and
battery metals
-- US$20m financing agreement entered into with Incoa
Performance Minerals, financing conditional upon operational
milestones being achieved - could be invested as early as Q4
2021
-- US$2m further investment into Brazilian Nickel as part of the
investment by the US government into a wider financing to advance
this significant development project
-- Given the implied undervaluation of the business, a GBP5m
share buyback program was undertaken and completed in November 2020
at an average price of GBP1.09 providing an immediate return to
shareholders
-- GBP4m of non-core asset disposals, mainly Berkeley Energia
and Horizonte Minerals shares, to majority finance the share
buyback
-- GBP5.7m reinvested in LIORC in Q1 2020 which yielded 14% on
investment throughout 2020, and GBP15.2m LIORC disposal in December
2020, generating a profit of GBP1.9m
-- GBP47.4m further LIORC disposals in Q1 2021 as part of the
Voisey's Bay financing, resulting in total disposals of GBP62.6m
which generated an overall return on investment of 60%
Dividend
-- Recommended final dividend for 2020 of 3.75p, which will take
the total dividend for 2020 to 9p per share (2019: 9p)
-- Looking ahead, we will be developing our capital allocation
policy to take into account the balance between attractive
shareholder returns, balance sheet discipline and growth, which is
essential for the long-term future of the business
-- We will continue to pay interim quarterly dividends at the
rate of 1.75p per quarter, with the final dividend for 2021 to be
determined based on results for the year and growth opportunities
executed or being progressed
-- Payment of the final dividend will be made on 18 August 2021
to shareholders on the register on 9 July 2021 with the shares
going ex-dividend on 8 July 2021
Outlook
-- The outlook for most commodities looks favourable for the
near-term with increased government investment likely globally as a
fiscal response to COVID-19
-- The Voisey's Bay transaction is expected to significantly
alter the Group's revenue profile composition in 2021
-- The Group's exposure to base metals has increased to over 60%
following the Voisey's Bay transaction, with the outlook for base
and battery metals looking favourable for the year ahead
-- Kestrel volumes are expected to remain at similar overall
levels in 2021, although the gradual reduction of the percentage of
production sourced from within the Group's private royalty land is
expected to commence in H2 2021
-- Maracás Menchen operator targeting increased activity in the
year ahead with increased premium vanadium product sales being
targeted and the sale of bi-products now underway
-- The Group has an active pipeline and financial flexibility to
continue to add to its high quality royalty and streaming
portfolio
Julian Treger, Chief Executive Officer of Anglo Pacific,
commented:
"Anglo Pacific is a very different business to what I reported
on this time twelve months ago. We have, with the Voisey's Bay
cobalt stream acquisition, fundamentally repositioned our portfolio
towards materials vital in providing cleaner energy for the future
whilst ensuring that the Group replaces its Kestrel revenue ahead
of time. This is immediately evident on our balance sheet where
these materials now account for over 60% of our royalty and
streaming assets.
Operationally our portfolio has performed well during the year
considering the challenges presented to the industry by COVID-19,
demonstrating the quality of the investment projects. The reduction
in our royalty revenue during 2020 to GBP34.0m however, highlighted
how important it was to act decisively to reduce our dependence on
one single asset and commodity. The coal markets, coking coal in
particular, had a turbulent year caused in large part by the
closure of Indian ports and the knock-on impact of an over supplied
seaborne market. Although prices recovered somewhat in early 2021,
prices for coking coal remain subdued whilst thermal coal has
rallied thus far this year. Our clear ambition is to reduce our
coal exposure over the coming years through the acquisition of
additional royalties and streams focussed on greener materials.
Although we are delighted with the quality, size and
sustainability profile of the Voisey's Bay acquisition, the job is
not done. We are determined to build on the momentum of this
transaction to increase our base and battery metals exposure
further over the course of 2021 and are working on a number of
opportunities.
The wider market for base metals and strategic minerals looks
favourable. The globally co-ordinated, planned infrastructure
investment, as a kick start to economies post COVID-19, looks set
to benefit these commodities. The movement towards the
electrification of automobiles appears to be gathering pace, with
an increasing number of manufacturers committing to this path and
setting ambitious timetables. We also saw the US government invest
directly into our Brazilian Nickel project, which is a clear sign
that western countries are looking to secure vital access to
strategic minerals. In the meantime, it is clear that future supply
will not meet the excess demand and it is likely we will see prices
remain at elevated levels.
We look forward to the remainder of the year with cautious
optimism and with prospects to add further growth to our business.
We were delighted with the response to our recent equity raise and
the support from our existing and new shareholders to the
transaction was overwhelmingly positive. We remain committed to
delivering value for all stakeholders in the years ahead.
Finally, I would once again like to thank our employees and
directors for adjusting so well to life in a COVID-19 environment.
We know that it has been challenging but the way in which our team
has adapted to this and delivered the largest and most important
acquisition in our history whilst working remotely has been a
phenomenal achievement."
(1) Adjusted 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.
(2) Free 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.
Analyst and Investor presentation
There will be an analyst and investor presentation via
conference call and webcast at 9:30am (BST) on 14 April 2021. The
presentation will be hosted by Julian Treger (CEO), Kevin Flynn
(CFO) and Marc Bishop Lafleche (Chief Investment Officer).
Please join the event 5-10 minutes prior to scheduled start
time. When prompted, provide the confirmation code or event
title:
Event Conference Anglo Pacific - 2020 Results Presentation
Title
Time Zone Dublin, Edinburgh, Lisbon, London
Start Time/Date 09:30 Tuesday, 14 April 2021
Duration 60 minutes
Location Phone Number
Dial-in +44 (0)330 336 9434
Confirmation
Code 5193638
Webcast Link https://webcasting.brrmedia.co.uk/broadcast/606497ae560fbf10fcc505ea
For further information:
Anglo Pacific Group PLC +44 (0) 20 3435 7400
Julian Treger - Chief Executive Officer
Kevin Flynn - Chief Financial Officer
Marc Bishop Lafleche - Chief Investment
Officer
Website: www.anglopacificgroup.com
Berenberg +44 (0) 20 3207 7800
Matthew Armitt / Jennifer Wyllie /
Varun Talwar / Detlir Elezi
Peel Hunt LLP +44 (0) 20 7418 8900
Ross Allister / Alexander Allen / David
McKeown
RBC Capital Markets
Farid Dadashev / Marcus Jackson / Jamil
Miah +44 (0) 20 7653 4000
Camarco +44 (0) 20 3757 4997
Gordon Poole / Owen Roberts / James
Crothers
Notes to Editors
About Anglo Pacific
Anglo Pacific Group PLC is a global natural resources royalty
and streaming company. The Company's strategy is to become a
leading natural resources company through investing in high quality
projects in preferred jurisdictions with trusted counterparties,
underpinned by strong ESG principles. It is a continuing policy of
the Company to pay a substantial portion of these royalties and
streams to shareholders as dividends.
Cautionary statement on forward-looking statements and related
information
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) 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'. 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 acquiring new royalties and 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 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; the 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, streams and investments by the
owners or operators of such properties in a manner consistent with
past practice; no material adverse impact on the underlying
operations of the Group's portfolio of royalties, streams and
investments from a global pandemic; 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 or operators of such underlying
properties; the 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,
streams and investments; no material adverse change in foreign
exchange exposure; no adverse development in respect of any
significant 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.
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 and investments, and could cause actual
results to differ materially from those suggested by any
forward-looking information. Such risks and uncertainties include,
but are not limited to current global financial conditions,
royalty, stream and 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, streams and
investments, royalties, streams 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.
Forward-looking statements are provided for the purposes of
assisting readers in understanding the Group's financial position
and results of operations as at and for the periods ended on
certain dates, and of presenting information about management's
current expectations and plans relating to the future. Readers are
cautioned that such forward-looking statements may not be
appropriate other than for purposes outlined in this announcement.
Forward-looking statements are not guarantees of future performance
and involve risks, uncertainties and assumptions, that may be
general or specific which could cause actual results to differ
materially from those forecast, 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. 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. No
statement in this communication is intended to be, nor should it be
construed as, a profit forecast or a profit estimate.
This announcement also contains forward-looking information
contained and derived from publicly available information regarding
properties and mining operations owned by third parties. This
announcement contains information and statements 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.
2020 was a most challenging year for Anglo Pacific and its
staff. As I wrote this statement last year, the scale of the
COVID-19 pandemic was unfolding, but it was still not clear the
extent to which society, business and markets would be affected.
The human cost has been severe and the disruption to people's
welfare and health truly disturbing. As a company we prioritised
the safety of our staff and ensured that they were able to continue
working from any location under the best conditions possible. I am
pleased to say that the whole team has managed its way through in
admirable fashion and we are proud of their commitment, spirit,
adaptability and achievements this year.
From a business perspective we saw a sharp downturn followed by
a more stable pattern as the year progressed, combined with a
remarkable recovery in markets fuelled by the extraordinary
stimulus measures introduced around the globe.
In our sector we have seen mixed outcomes for different
commodities, but the overall picture continues to be very positive
as the supply and demand fundamentals remain strong. Current
expectations of a recovery in worldwide economies will further
underpin demand while certain factors, such as the drive for a
cleaner world, provide extra impetus for commodities required for
renewable power generation and electric vehicles in particular.
We also continue to seek to significantly reduce our exposure to
coal related revenues as the world progresses towards a low carbon
future. Climate change is a huge challenge for the world, and we
have been looking for opportunities to increase our exposure and
contribution to the reduction of carbon emissions and the creation
of a cleaner environment. We have concentrated for a long time on
the need to diversify and grow our portfolio, particularly to
address the overdependence on Kestrel, which will see declines in
volumes from 2023 onwards. This search has taken time as we apply
rigid discipline in terms of financial, technical, legal,
operational and ESG due diligence, which leads to a number of
potential opportunities being discarded.
We are delighted, however, to have recently completed the
acquisition of a stream over cobalt production at the Voisey's Bay
mine in Canada. We believe that this transaction largely solves
Anglo Pacific's two major strategic challenges: it addresses the
medium-term declining income at Kestrel and significantly
repositions the Company's portfolio away from coal. The acquisition
of this new cornerstone asset will underpin our ability to deliver
further growth and sustainable future returns for our shareholders,
along with a focus on commodities that will flourish in the 21(st)
century.
We took advantage of the recent strong rebound in the price of
iron ore and sold a large portion of our holding in Labrador Iron
Ore Royalty Corporation (LIORC) to finance the acquisition in part.
This represented a timely realisation of an asset exposed to a
commodity arguably at peak prices and reinvestment in cobalt as it
is poised for considerable growth. The remainder of the financing
was achieved by means of an oversubscribed equity placement which
raised GBP46.5m (US$66.0m) and support from a new syndicate of
leading Canadian banks.
In order to complete the Voisey's Bay acquisition we have
assumed a higher debt burden than in the recent past but are
confident that we will be able to reduce our leverage significantly
in the near term from operational cash flows and that we remain in
strong financial health.
The new portfolio provides us with a more stable outlook and
substantial growth potential. In terms of performance in the near
term, most of the underlying operations are performing well and
continue to experience limited disruption from the COVID-19
pandemic. We look forward with confidence to a successful 2021.
Building on the momentum generated by the Voisey's Bay
acquisition, we continue to actively look for growth opportunities,
particularly in materials supporting a cleaner world. Given the
general enthusiasm in the sector and the risk of inflated pricing,
we will need to continue to apply discipline to our acquisition
process.
2020 Performance
The Group's royalty portfolio generated a total contribution of
GBP37.0m for the year ended 31 December 2020, which represents a
38% decrease when compared to the GBP59.5m generated in 2019. While
the operations at the Group's producing royalties continued largely
unaffected during the COVID-19 pandemic, except for EVBC and the
McClean Lake mill, some underlying commodity prices have been
severely affected on the back of demand slumping and port closures.
The weakness in the commodity prices most notably impacted the
royalties from Kestrel and Narrabri. Maracás Menchen was also
affected by price weakness, and a one-off adjustment after the
operator, Largo Resources, exited its offtake agreement with
Glencore.
Our reported profit after tax has swung from a profit of
GBP29.0m in 2019, to a loss of GBP18.6m, which includes a downward
revaluation of Kestrel of GBP44.2m reflecting further depletion and
the major reversal in coal prices. When valuation and other
non-cash items are removed, our underlying adjusted earnings were
GBP22.3m or 12.35p per share down from GBP36.8m or 20.41p in
2019.
This decline is naturally disappointing, although it would be
fair to observe that our high levels of income in the last two
years benefited from a number of unusual factors, mainly
extraordinary prices for two of our key commodities and a strong
rebound in volumes. The volumes achieved in 2020 look to be
sustainable and our recent acquisition will see underlying volume
growth. We will see how commodity prices develop, but our focus on
21(st) century materials should help us benefit from a better
commodity mix.
We were pleased to welcome two new Canadian banks, RBC Capital
Markets, and Canadian Imperial Bank of Commerce , to our lending
group alongside Scotiabank, who provided us with a US$180m facility
to facilitate the acquisition of the Voisey's Bay stream. We are
delighted with their support and we look forward to a long-term
relationship.
Returns to Shareholders
We have recommended that the final dividend be 3.75p. Should
this be approved at the 2021 AGM, the total dividends for 2020
would be 9p, in line with last year. Looking ahead, we will be
developing our capital allocation policy to take into account the
balance between attractive shareholder returns, balance sheet
discipline and growth, which is essential for the long-term future
of the business. We will continue to pay interim quarterly
dividends at the rate of 1.75p per quarter, with the final dividend
for 2021 to be determined based on results for the year and growth
opportunities executed or being progressed.
In addition to the total dividends of 9p per share, we returned
the cash generated from the sale of non-core mining and exploration
interests directly to shareholders by way of a GBP5.0m share
buyback between September and November 2020. The share buyback
equates to an additional return to shareholders 2p per share,
resulting in total shareholder distributions for 2020 of 11p per
share.
Strategy
Last year the Company laid out its strategy to move towards
lighter, greener materials, which encompass environmental benefits.
Many of these materials form part of the new wave of technologies
around electrification, including renewable energy. Examples
include base metals linked to energy storage or power transition,
specialist alloying materials like niobium, vanadium and aluminium
and battery materials like lithium, cobalt and nickel. We are
delighted to have executed on the Voisey's Bay transaction which
fits this strategy very neatly.
Anglo Pacific is also highly focused on ESG matters. As we have
previously announced, the Group will not make any additional
investments in thermal coal and with the Kestrel depletion now
accelerating we would expect our coal contribution to be minimal in
five years' time. In addition, we continue to apply our disciplined
approach to investing in assets with strong ESG credentials and are
pleased to note that in the case of the Voisey's Bay acquisition,
the underlying mine ranks amongst the lowest global emitters of
CO(2) for nickel producers.
We will continue to focus on financing those commodities which
will be essential in delivering the technology required to reduce
dependence on fossil fuels and ultimately improve the planet.
CHAIRMAN'S STATEMENT
Board
The composition of the Board was refreshed in late 2019 with the
appointment of Graeme Dacomb and James Rutherford as non-executive
directors, while the Group's Chief Financial Officer, Kevin Flynn,
was appointed as an executive director with effect from 1 January
2020. In addition, the chairmanships of the Board's committees were
rotated following the retirement of Mike Blyth after the 2020
AGM.
Succession planning for both the non-executive and executive
directors is a critical and ongoing cycle of work. Following the
2019 renewal, we believe we have an invigorated and diverse Board
with an excellent collection of varied skills and experience, which
is key in determining the strategy for the Company and providing
guidance and oversight to management. Vanessa Dennett has indicated
that she would like to retire from the Board and it is therefore
proposed that she not seek re-election at the forthcoming AGM. We
will be sorry to lose Vanessa, as she has been a very active and
constructive member of the Board. I would like to express my
sincere thanks to Vanessa for her enormous contribution to the
Company and wise advice over the years. We all wish her well.
We will undertake a search for a replacement for Vanessa bearing
in mind our criteria for Director appointments, including
diversity. Further, the composition of the Board will be kept under
constant review and further changes will be made as tenures come to
an end and as the business continues to evolve.
In light of the challenges brought about by the COVID-19
pandemic in 2020, great care was taken to ensure continuity in the
Board's proceedings. A full schedule of meetings, including those
of the Board's committees, was held as planned, albeit in a virtual
environment. The external review of the Board's effectiveness also
proceeded as planned.
Outlook
2020 threw several challenges at us but our focus has not
changed. We remain committed to building on the significant
progress we have made recently in creating a portfolio of royalties
which will replace our Kestrel income as it declines in the next
five years. We believe that we are on track to do so and the recent
acquisition of the cobalt stream is a significant step forward.
We have confidence in the prospects for the business and expect
the sector to enjoy meaningful growth over the next few years. With
our strategy to be part of the climate change solution, we are
confident that our own prospects are particularly positive.
Finally, I would like to thank the Board, the executive team,
under the leadership of Julian Treger, and all staff for their hard
work and dedication to the success of Anglo Pacific. We have a
first-class management team in place capable of sourcing and
delivering the growth we are targeting in the coming years.
Our employees' response to the recent extraordinary challenges
has been exemplary and their loyalty and ability to adjust to
working in these difficult times has been outstanding. The health
and wellbeing of all our employees has been our top concern and we
have worked hard to ensure that our working practices have been
amended to eliminate unnecessary risks to staff.
N.P.H. Meier
Chairman
13 April 2021
CHIEF EXECUTIVE OFFICER'S STATEMENT
2020 was an unprecedented year with much of the world grappling
with the pandemic. Looking back a year ago, having just announced
record results at a time when COVID-19 was in its infancy, we were
confident that we would weather the storm well. The completion of
the largest acquisition in the history of our company 12 months
later confirms our confidence was well placed.
I am extremely proud of our team and how quickly they adapted to
the new normal of remote working, whose continued collaboration and
tireless efforts to drive the business forward for our stakeholders
culminated in the US$205m purchase of the Voisey's Bay cobalt
stream. This transaction transforms the complexion of our portfolio
decisively towards battery materials and away from our coal
heritage, and as a result pivots us to become the royalty and
streaming company for 21(st) century materials.
In completing this acquisition, we have simultaneously addressed
two of our major strategic challenges: replacing Kestrel's income,
which begins declining in 2023; and significantly reducing our
exposure to coal. We are also delivering on our stated strategy to
become a leading natural resources company through investing in
high-quality projects in preferred jurisdictions with trusted
counterparties, underpinned by strong ESG principles - the Voisey's
Bay nickel-cobalt-copper mine is located in Canada, operated by
Vale and ranks amongst the lowest global emitters of CO(2) for
nickel producers.
The financing of this transaction by entering a new borrowing
facility with three leading Canadian banks, issuing GBP46.5m in
equity and monetising the majority of our holding in Labrador Iron
Ore Royalty Corporation has enabled us to retain some US$55m in
liquidity to continue to grow and diversify our portfolio.
Financial performance
While the majority of the mines underlying our portfolio
continued to operate uninterrupted by COVID-19, they were not
immune to some effects from the global pandemic, notably weaker
pricing and reduced production levels. The weakness in coal prices
significantly reduced the royalties generated by Kestrel and
Narrabri, resulting in portfolio contribution decreasing by 38% to
GBP37m in 2020, and led to a 39% reduction in adjusted earnings per
share to 12.35p. Despite these decreases, we increased the
quarterly dividend payments to 1.75p per share and are proposing a
final dividend of 3.75p per share to maintain total dividends of 9p
per share in respect of 2020. We will continue to pay a quarterly
dividend of 1.75p per share which provides shareholders with a base
level of income of 7p.
2020 was a year of very different quarters in terms of commodity
prices. Q1 2020 started well with coking coal prices remaining at
elevated levels as China shut down domestic coal production and had
to import more supplies. Q2 and Q3 saw this process reverse as the
Chinese economy opened up while others like the Indian economy shut
down. The resulting surplus in seaborne coal led to much lower
prices in those months. Finally, Q4 showed a strong rebound as
world economies started to recover and the prospects of
vaccinations created optimism, and our copper and iron ore
interests in particular began to perform well.
Fortunately, the recovery in commodity prices has continued into
2021 and if maintained, we would expect improved performances from
our Narrabri, Mantos Blancos and Maracás Menchen royalties this
year. In addition, we expect the newly acquired Voisey's Bay cobalt
stream to make a significant contribution to our performance in
2021.
We are optimistic about the prospects for cobalt and expect this
commodity to outperform consensus forecasts, as economies begin to
emerge from COVID-19 restrictions as vaccination programmes are
rolled out and governments deploy stimulus spending focused on
infrastructure that supports a low carbon future.
Portfolio highlights
Kestrel, LIORC and Mantos Blancos were responsible for
generating 83% of the Group's portfolio contribution in 2020 (2019:
84%), as summarised below.
Kestrel
Kestrel was our largest royalty related asset by portfolio
contribution, generating 53% of the Group's total portfolio
contribution in 2020 (2019: 66%). Lower forward-looking coal prices
and depletion in the current year have resulted in Kestrel's
carrying value, net of tax, on the balance sheet reducing to
GBP38.4m at year end (2019: GBP66.9m). Prior to completing the
acquisition of the Voisey's Bay cobalt stream, Kestrel accounted
for 17% of our portfolio's value. Following completion, Kestrel now
accounts for just 12% of our portfolio's value and is expected to
generate 33% of our total portfolio contribution in 2021,
demonstrating how far we have shifted from our coal origins to
become a different business.
Labrador Iron Ore Royalty Corporation
Our holding in LIORC generated 21% of the Group's total
portfolio contribution in 2020 (2019: 16%), making it the second
largest royalty related asset by contribution. With the increase in
iron ore prices throughout the second half of 2020, the LIORC share
price increased by 32% from the start of the year resulting in a
carrying value, net of tax, of GBP64.2m to make LIORC the Group's
largest asset by value at year end.
We made a further investment of GBP5.7m in LIORC during the
first quarter of 2020, representing the reinvestment of the
dividends expected to be received in first half of 2020. Following
the 32% increase in the underlying share price, as a result of iron
ore trading at around double long-term forecasts and the funding
requirements of the Voisey's Bay acquisition, we commenced the
disposal of 75% of our holding in late 2020 which concluded in
early 2021.
The partial disposal of our holding in LIORC not only enabled us
to proceed with the acquisition of Voisey's Bay, but also generated
significant value for our shareholders. We made our initial
investment two years ago when iron ore prices were much lower, and
we successfully rode the rise of high-quality iron, generating
significant income on the way. We retain around a US$30m position
in LIORC, which is a potential source of liquidity for future
transactions but also allows us to add to the holding should iron
ore prices decline as is possible in the years ahead.
Mantos Blancos
Our Mantos Blancos royalty benefited from a higher copper price
towards the end of the year which has continued in 2021 thus far.
Mantos made a full year contribution of GBP2.9m in 2020 and we
expect this to increase in 2021 with the much higher copper price
environment.
Despite some minor delays in 2020, the expansion project for the
Mantos Blancos mine continues to progress and is expected to begin
production later this year. This bodes well for increased
production and royalty levels in 2022. There are further expansion
opportunities that Mantos intends to slowly progress throughout the
rest of the year which would also benefit our royalty.
With copper prices at US$5,700/t at the time of acquiring the
Mantos Blancos royalty, and currently trading at US$8,785/t we
entered copper at an opportune time for our shareholders,
particularly as we expect copper to be one of the major
beneficiaries of the global move to a low carbon future. We
continue to seek more copper royalty and streaming exposure.
Other portfolio events
There were a number of other positive developments in the
portfolio during 2020, which could be significant in years to come.
Potentially the most exciting of these was the acquisition by
Fortescue Metals Group of a stake of just under 20% in Candente
which owns the vast undeveloped Canariaco copper deposit in Peru,
over which we have a royalty. Fortescue is an US$80bn business and
thus the prospects for this project being financed and developed
appear much improved.
Since joining Anglo Pacific, one of my primary objectives has
been to dramatically reduce the dependence and importance of
Kestrel to the Company, whilst recycling the cashflow it has
generated into new investments or distributions to shareholders as
dividends. The developments during 2020 and 2021 so far have
decisively shifted the composition of our portfolio away from coal
and steelmaking materials towards the more exciting area of battery
metals which is well positioned for the 21(st) century.
This transformation has been remarkable, with the coal and
steelmaking related assets in our portfolio pivoting from being 66%
of its value at the beginning of 2020 to 31% following the Voisey's
Bay acquisition, while our proportion devoted to twenty first
century materials has risen from 20% to 60% - dominating the
portfolio for the first time in our history.
Acquisitions
We made two acquisitions in 2020, the first being the
reinvestment of LIORC dividends referred to above ahead of the
major transformational purchase of the Voisey's Bay stream earlier
this year. The second was our US$2m participation in an equity
placing by Brazilian Nickel, the operator of the Piauí nickel
project over which we hold a 1.3% NSR.
Our participation in the Brazilian Nickel placing was alongside
Techmet, who were funded by the US government, a sign that
governments are now beginning to invest in supply chains for key
strategic minerals. The placing was negotiated when nickel prices
were much lower and helps accelerate the development of the mine
where we have the option to invest a further $70m over time and
which could, depending on nickel prices, start to generate over
$20m annually for us from the middle of the decade.
In addition to the two acquisitions, we entered into a financing
arrangement led by Orion Mine Finance Partners, which affords the
Company the opportunity to invest US$20m into Incoa, a calcium
carbonate project, at a point when it is in production and
generating a certain level of revenue. This project is progressing
well and we expect to fund this commitment in 2022 after the
initial phase of the project is up and running.
Share buyback
In addition to the total proposed dividends for 2020 of 9p, we
returned a further 2p to shareholders in the form of a GBP5.0m
share buyback programme between September and November 2020. The
buyback was financed through the partial disposal of our holding in
Berkeley Energia, whose share price had doubled at the time. Over
the course of programme, we acquired an aggregate of 4,629,703
shares at a volume weighted average price of 108p per share. The
shares acquired under the programme have been retained in treasury
and provide the Group with additional liquidity to finance new
transactions.
Outlook
As the world slowly emerges from the pandemic and growth
returns, we expect the Group's portfolio contribution to increase
in 2021, supported by higher base metals prices and income from our
recent Voisey's Bay acquisition. In relation to the latter, it is
pleasing to note that the price of cobalt is already in excess of
our investment assumption. The new world is much more focused on
green and environmental issues and parts of the mining sector are
now being considered essential to the development of a new cleaner
world. Anglo Pacific with its 60 percent exposure to battery metals
is thus well positioned to benefit from this trend.
Having retained significant financing flexibility to fund
further acquisitions and having made a pivotal step in our progress
to reduce our reliance on Kestrel and our coal heritage, we are
approaching the remainder of this year with a degree of
optimism.
J.A. Treger
Chief Executive Officer
13 April 2021
FINANCIAL REVIEW
Introduction and impact of Covid-19
2020 was a most uncertain year for many businesses including
Anglo Pacific with COVID-19 presenting unique challenges. For Anglo
Pacific, it was vital that COVID-19 did not halt the underlying
mining activity from which we derive our income. This risk included
not just the potential outbreak of COVID-19 at a mine site, but
also stoppages throughout the entire supply chain, including
transportation and manufacturing activity at end users.
It was reassuring that mining in countries such as Australia and
Canada, where the Group derives the majority of its revenue, was
categorised as a key economic activity and governments determined
that lockdown and other restrictions should not apply to such
operations provided they could be undertaken in a COVID-secure
manner. As a result, there was limited disruption to the operations
underlying the Group's producing assets during the period from
COVID-19, and we believe this is testament to our strict focus on
well-established mining jurisdictions where mining industries are
prioritised and protected, given their key economic
contributions.
Whilst the majority of our assets remained relatively unimpacted
from an operational perspective, we did see two instances of
temporary shutdowns: EVBC was placed on care and maintenance for a
period of two weeks at the beginning of the pandemic; and the Cigar
Lake uranium mine, which provides the throughput to the McClean
Lake mill from which the Group derives a toll revenue, was placed
on care and maintenance for a period of 6 months between April and
September 2020, and again at the start of January 2021 and remains
on care and maintenance at the date of this report. In total, these
operations represented approximately 13% of the Group's 2020
portfolio contribution (2019: 10%).
Although COVID-19 has not created widespread operational
disruption, its impact was more keenly felt through lower coal
prices particularly in Q2 and Q3 of 2020. This occurred largely due
to Indian port closures as the country imposed severe restrictions
in an attempt to manage the pandemic. With disruption to this key
market, tonnages were diverted onto an already imbalanced seaborne
market which pushed prices down considerably. Consequently, the
Group witnessed 35% lower pricing from the Kestrel royalty
(inclusive of the impact of a lower royalty ratchet) and 25% lower
pricing from Narrabri in 2020.
As a result, and as described in further detail in this section,
total portfolio contribution decreased by 38% to GBP37.0m in 2020.
This led to adjusted earnings of 12.39p for 2020, a 39% reduction
on 20.41p in 2019.
The Group ended the year in a net debt position of GBP24.3m, but
this largely reflected the sale of GBP15.2m of its previously 7.1%
stake in LIORC as it prepared itself to finance the Voisey's Bay
transaction which was completed in March 2021.
Voisey's Bay acquisition and financing
The acquisition of the Voisey's Bay cobalt stream in March 2021
was a significant transaction in the history of Anglo Pacific,
representing the Group's largest ever acquisition at a day one
consideration of US$205m. Our hitherto cornerstone asset, Kestrel,
had a net value of GBP38.4m at the end of 2020, with the majority
of this expected to be earned over the next three to four years.
Replacing Kestrel has always been a critical strategic challenge
both in terms of creating earnings stability over the longer-term
and also to reduce the Group's coal exposure significantly. The
Voisey's Bay transaction has achieved both objectives.
The transaction was financed through a combination of equity,
asset sales and a new borrowing facility, designed to minimise the
quantum of equity needed to be raised, and was undertaken in a
manner to reflect the need to demonstrate financing certainty to
the vendor.
Equity raise
The equity raise saw the Company issue just under 20% of its
shares by way of placing to institutional investors with retail
participation through the PrimaryBid online platform - the latter
to specifically recognise the feedback we received at AGMs over the
years in relation to retail holders being unable to participate in
new equity raises. We were pleased to see high demand through the
placing, with strong support from our existing shareholders. The
placing ultimately raised GBP46.5m (US$66.0m), representing a
modest discount of 6% to the share price prior to the placing.
US$80m part disposal of LIORC
The Group's 7.1% stake in LIORC was a well-timed investment,
just before the iron ore price began its run to a 9-year high
recently. Although this represented the part ownership of a
royalty, one key feature of this investment was its liquidity
compared to the Group's other assets, capable of being recycled
into other investments at relatively short notice. As the Voisey's
Bay transaction became more certain, the Group commenced a program
to realise US$80.0m from its holding in LIORC with the majority of
sales being made after the year end in order to capture the Q4 20
dividend.
The part disposal of LIORC was an opportune time to decrease the
Group's exposure to iron ore given that the Group had earned a 60%
return on the investment over a two-year period and the commodity
was trading at a 9-year high with the longer-term price forecast
significantly lower than the near-term forecast. The opportunity to
recycle capital was very compelling given what appears to be an
attractive entry point for cobalt. Since we disposed of our
holding, iron ore prices have declined by around 10%.
At today's price levels, the Group retains around US$30m
(GBP22m) exposure to LIORC. This represents part of our profit on
the investment, which not only provides a healthy yield based on
broker consensus dividend expectations, but also the flexibility to
finance future acquisitions, as demonstrated through the Voisey's
Bay transaction.
New borrowing facility
Given the transformative nature of the Voisey's Bay transaction,
the Group decided to increase its borrowing ratios to make the
acquisition. This required a new borrowing facility with new
lenders to allow higher operational leverage in the business than
the Group previously had, which was capped at 2x adjusted EBITDA.
For this reason, the Group put together a new banking syndicate
comprising Scotia, CIBC and RBC. These blue-chip Canadian banks are
market leaders in financing the North American royalty and
streaming sector and their familiarity with the market greatly
assisted in putting together a facility appropriate for the
structure of the business post-acquisition.
The key features of the facility include: US$150m commitment
(day one step down from US$180m upon completion of the equity
raise); step down to US$125m after 18 months; operating leverage of
up to 3.5x; dividend restrictions if leverage exceeds 2.5x for the
Q1 2021 dividend and onwards (not expected to be triggered);
security against the Group's assets; and the option to extend the
three-year term by one year subject to lender consent.
The facility has a cost of LIBOR plus 2.75-4.5% depending on
leverage ratios but we expect the cost to normalise at LIBOR plus
2.75-3.50%. The day one borrowings of US$123.5m implied leverage of
just over 3x at closing, with leverage declining to below 2.5x by
the end of Q2 21 and reducing thereafter. We have US$26.5m undrawn
and available on the facility currently.
2020 Results
As mentioned at the outset, the impact COVID-19 had on the Group
during 2020 was largely in the form of lower coal prices as India
imposed import restrictions during Q2 2020 which led to a shutdown
of a key export market for a period of time during the middle of
2020. This contributed to a 39% decrease in royalty related revenue
to GBP34.0m.
2019 has come to represent somewhat of an outlier year for Anglo
Pacific as this was the year when the operator of Kestrel increased
production levels by 40%. This was also a year when prices were 51%
higher than those realised in 2020. It appeared that this was going
to represent a new normal production level for the operation,
however, they have now slowed down their rates of production and we
do not expect this level of production again. This should however
result in a more gradual decline in revenue from Kestrel than
previously expected.
The weaker outlook for coking coal, together with depletion
through mining, resulted in a GBP44.2m reduction in the Kestrel
valuation (2019: GBP9.2m) which contributed to an overall loss
after tax of GBP18.6m (2019: profit of GBP29.0m), and a loss per
share of 10.31p (2019: earnings of 16.06p).
Adjusting for non-cash valuation and impairment charges, the
underlying performance of the business remained highly profitable,
with adjusted earnings per share of 12.35p, a decrease of 39% on
2019 earnings of 20.41p, largely mirroring the 39% fall in royalty
related revenue.
2020 2019
GBP'000 % GBP'000
Royalty related revenue 34,009 (39%) 55,728
Receipts from royalty financial instruments 2,308 7% 2,166
Operating expenses - excluding share-based payments (6,109) 2% (6,018)
Finance costs (2,324) 74% (1,337)
Finance income 116 238% 34
Net foreign exchange gains/losses 881 -
Other (losses)/income (521) 216% (165)
Tax (6,082) (55%) (13,560)
Adjusted earnings 22,279 (39%) 36,848
-------- ------ ---------
Weighted average number of shares ('000) 180,374 180,544
12.35p (39%) 20.41p
Royalty related revenue
Total royalty related revenue for the year was GBP34.0m, a
decrease of 39% compared to the GBP55.7m earned in 2019. Combining
the EVBC royalties of GBP2.3m (2019: GBP2.2m) and the GBP0.7m
(2019: GBP1.6m) repayment of principal from McClean Lake which are
not reflected in the income statement, with royalty related revenue
results in in the Group's portfolio contribution of GBP37.0m (2019:
GBP59.5m).
Kestrel is still the biggest single contributor towards royalty
related revenue at 53% in 2020, but this is a noticeable reduction
on the 66% equivalent in 2019. We expect Kestrel's overall
contribution to royalty related revenue to continue to decline as
mining moves outside the Group's private royalty lands in the
coming years, combined with the impact of new sources of royalty
income such as the recent Voisey's Bay cobalt acquisition.
2020 FY 2019
GBP'000 GBP'000
Kestrel 18,141 37,015
Narrabri 3,052 4,008
Maracás Menchen 526 2,746
Mantos Blancos 2,851 1,022
Four Mile 454 273
-------- --------
Royalty income 25,023 45,064
Denison Interest 1,782 1,926
Labrador Iron Ore & Flowstream - Dividends 7,204 8,738
-------- --------
Royalty related revenue 34,009 55,728
======== ========
The individual asset performance is discussed in greater detail
in the business review section, but the following are some
high-level observations explaining the variances in 2020:
Kestrel: 10% decrease in volumes as the rate of mining slowed,
along with a 34% price reduction
Narrabri: 4% increase in volumes, 25% decrease in price
LIORC: 24% decrease in dividends due to planned capex impacting
on special dividends despite record iron ore prices
Maracás Menchen: 7.5% decrease in sales, 65% reduction in vanadium price
Income impacted by a US$1.3m one-off adjustment upon the
termination of the Glencore offtake agreement
Mantos: Full year impact of royalty (income only commenced late
in Q3 19)
3% increase in price compared to H2 19 but 10% increase when
comparing pricing levels between H2 20 and H1 20
Volumes increased by 15% in Q4 20 compared to Q4 19
EVBC: 16% reduction in volumes, offset slightly by higher gold
prices
Record copper production in period also bolstered revenue
McClean Lake: 6 month shut down during the year as a precaution due to COVID-19
Operations recommenced in September 2020 but were shut down
again in January 2021
Four Mile: We hope to see tangible progress on our legal dispute
over the coming months
The outlook for 2021 is mixed in light of the ongoing presence
of COVID-19. While the pricing for commodities such as copper,
nickel and cobalt appears promising, coking coal on the other hand
remains subdued, with spot prices currently below consensus
estimates in the near term. Overall, the Group should generate
considerable cash during 2021 through its existing portfolio and
the addition of the Voisey's Bay cobalt stream.
Outgoings
Total operating expenses for the year were down 10%. Excluding
non-cash share-based payment charges, overheads were broadly in
line with 2019 at just over GBP6.1m. A reduction in staff costs
during the year reflected lower bonus levels given the Group's
performance. Increased costs associated with the Four Mile legal
dispute were offset slightly by a reduction in aborted deal costs.
Overall, the run rate of GBP6m was maintained, although costs for
2021 are expected to increase modestly as the Group will continue
to invest in growth and will look to resource itself
appropriately.
Finance costs for the year increased to GBP2.3m from GBP1.4m in
2019. This is largely the result of a higher level of borrowings on
average over the course of the year along with the release of
capitalised costs upon the amendment of the borrowing facility in
January 2020.
The Group's tax cost decreased to GBP4.6m from GBP12.4m
previously, reflecting the reduction in revenue from Kestrel in
2020, which attracts the highest level of corporate tax. The
deferred tax credit is a non-cash item primarily reflecting the tax
associated with the valuation movement at Kestrel.
The small impairment charge of GBP3.4m in the year reflects
pushing out the anticipated start date of the Pilbara royalty
(GBP2.7m) along with the full impairment of the Groundhog royalty
(GBP0.7m). The revaluation of royalty instruments of GBP0.9m
includes the EVBC receipts of GBP2.3m. Excluding this would show a
fair value loss on the valuation of the EVBC royalty of GBP1.5m
given that it is now one year closer to the end of its mine
life.
Taking all of the above into account resulted in a loss after
tax for the year of GBP18.6m (10.31p per share) compared to a
profit of GBP29.0m (16.06p) in 2019. Excluding non-cash valuation
and impairment charges (including depreciation, amortisation and
share based payments), adjusted earnings were GBP22.3m (12.35p per
share) compared to GBP36.8m (20.41p per share) in 2019.
Dividends and Capital Allocation
The Board is recommending a final dividend per share of 3.75p
for 2020 which when added to the 5.25p already paid, will result in
total dividends for 2020 of 9p per share matching that of 2019.
This was 1.4x covered based on adjusted earnings (2019: 2.3x
covered).
In addition to this, the Board undertook a modest GBP5.0m share
buyback program during 2020, which equated to 2p per share. As
such, total distributions to shareholders in 2020 were 11p.
Following the acquisition of the Voisey's Bay stream in Q1 2021,
and the associated financing package, the Board is proposing to
implement a formal capital allocation policy. While this is still
being developed in full, it is intended to include the following
principles:
Balance Sheet strength Need to ensure a reasonable level of
de-leveraging over time post the Voisey's Bay transation
Funding for further acquisitions The Company needs to continue
the diversification of its portfolio, capitalise on the momentum
provided by Voisey's Bay and consolidate its position as a leading
21(st) century minerals royalty and streaming company
Quarterly dividends The policy remains unchanged for 2021 with a
quarterly dividend of 1.75p
Other shareholder returns This will depend on the outturn for
the year along with how successful the company has been in adding
further growth
Balance Sheet
Net assets decreased to GBP215.0m at the end of 2020 compared to
GBP225.7m a year earlier. The main reason for the decrease was the
additional year of depletion from Kestrel along with lower coking
coal price inputs. The carrying value on the balance sheet (net of
tax) of Kestrel fell from GBP66.9m in 2019 to GBP38.4m at the end
of 2020.
Net assets reconciliation GBPm:
http://www.rns-pdf.londonstockexchange.com/rns/3718V_1-2021-4-13.pdf
The increase in royalty financial instruments of GBP7.4m largely
reflected the increase in the market price of LIORC, given the
strength of the iron ore price in 2020. This would have been even
larger but for the Group disposing of GBP15.2m of this position in
the run up to year end for the purposes of financing Voisey's
Bay.
The reduction in royalty intangibles reflects the amortisation
charges in the period. These assets are carried at amortised cost,
unlike Kestrel and LIORC, and due to their depleting nature will
always show a decrease in the year.
The non-current receivables relate to the Group's loan to
Denison Mines, which is repaid through the toll milling receipts
from McClean Lake mill. Trade receivables of GBP10.8m relate to
royalty receivables at the end of the year and were received in
full during Q1 21.
Net assets of GBP215m at the end of 2020 equated to 122p per
share having taken account of the dividends paid and share buyback
which total GBP22.0m, compared to 127p at the end of 2019.
Cash and borrowings
The Group generated free cash flow in 2020 of GBP20.4m before
acquisitions and dividends. This compares to GBP47.7m from 2019,
although this number is distorted due to the exceptional and
non-recurring levels of production from Kestrel. 2020 includes
GBP4.2m of non-core disposals of part of the Group's stake in
Berkeley Energia and Horizonte Mineral.
Cash Flow Sources & Usage Chart:
http://www.rns-pdf.londonstockexchange.com/rns/3718V_2-2021-4-13.pdf
Combining the dividends paid in 2020, together with the share
buyback, total shareholder distributions were GBP21.7m for the
year. Only GBP8.7m was invested during the year, which includes the
Maracás deferred consideration of GBP1.2m. This dynamic has changed
significantly thus far in 2021 with the US$205m Voisey's Bay
acquisition.
Ahead of financing the Voisey's Bay acquisition, the Group
commenced the partial disposal of its LIORC investment and at the
end of 2020 had realised GBP15.2m from this sale. These funds were
held in restricted accounts under the Group's existing revolving
credit facility and resulted in net debt of GBP24.3m at the end of
2020 compared to GBP28.8m at the end of 2019.
As the Group's borrowings increased to US$123.5m on closing the
Voisey's Bay acquisition, a priority for 2021 will be to reduce our
levels of borrowing whilst seeking to add further assets to our
growing portfolio. In addition to the US$26.5m currently undrawn
under the Group's new facility, we retain around US$30m of
liquidity through our residual stake in LIORC which can also
finance further growth (subject to lender consent).
With the Voisey's Bay acquisition providing long-term earnings
stability, some US$55m of liquidity available to us and the support
of a syndicate of leading Canadian banks in the royalty and
streaming sector, the Group is in a good position to continue to
add to its diversified portfolio and become a significant 21(st)
century minerals royalty and streaming company.
K. Flynn
Chief Financial Officer
13 April 2021
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2020
2020 2019
GBP'000 GBP'000
Royalty related revenue 34,009 55,728
Amortisation of royalties (5,522) (3,777)
Operating expenses (6,402) (7,132)
--------- ---------
Operating profit before impairments and revaluations 22,085 44,819
Impairment of royalty intangible assets (3,352) (1,367)
Revaluation of royalty financial instruments 883 2,478
Revaluation of coal royalties (Kestrel) (44,204) (9,215)
Finance income 116 34
Finance costs (2,324) (1,337)
Net foreign exchange (losses)/gains (381) 2,703
Other (losses)/income (28) (480)
--------- ---------
(Loss)/Profit before tax (27,205) 37,635
Current income tax charge (4,643) (12,414)
Deferred income tax credit 13,249 3,774
--------- ---------
(Loss)/Profit attributable to equity holders (18,599) 28,995
========= =========
Total and continuing (loss)/earnings per share
Basic (loss)/earnings per share (10.31p) 16.06p
Diluted (loss)/earnings per share (10.31p) 15.97p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2020
2020 2019
GBP'000 GBP'000
(Loss)/Profit attributable to equity holders (18,599) 28,995
Items that will not be reclassified to profit or loss
Changes in the fair value of equity investments held at fair value through other
comprehensive
income
Revaluation of royalty financial instruments 18,637 (123)
Revaluation of mining and exploration interests 6,851 923
Deferred taxes relating to items that will not be reclassified to profit or loss (2,182) (22)
--------- --------
23,306 778
Items that have been or may be subsequently reclassified to profit or loss
Net exchange loss on translation of foreign operations 5,396 (8,703)
--------- --------
5,396 (8,703)
Other comprehensive profit/(loss) for the year, net of tax 28,702 (7,925)
Total comprehensive profit for the year 10,103 21,070
========= ========
CONSOLIDATED BALANCE SHEET AND COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2020
Group
2020 2019
GBP'000 GBP'000
Non-current assets
Property, plant and equipment 759 955
Coal royalties (Kestrel) 55,874 96,419
Royalty financial instruments 73,203 65,801
Royalty and exploration intangible assets 95,613 102,201
Mining and exploration interests 8,019 3,642
Deferred costs 1,514 682
Other receivables 17,010 17,919
Deferred tax 3,266 3,185
-------- --------
255,258 290,804
Current assets
Trade and other receivables 10,778 9,546
Derivative financial instruments 10 -
Cash and cash equivalents 20,156 7,597
-------- --------
30,944 17,143
Total assets 286,202 307,947
-------- --------
Non-current liabilities
Borrowings 44,518 36,401
Other payables 1,599 1,659
Deferred tax 20,127 30,172
-------- --------
66,244 68,232
Current liabilities
Income tax liabilities 2,867 9,821
Derivative financial instruments - 480
Trade and other payables 2,085 3,700
-------- --------
4,952 14,001
Total liabilities 71,196 82,233
-------- --------
Net assets 215,006 225,714
======== ========
Capital and reserves attributable to shareholders
Share capital 3,542 3,629
Share premium 63,137 62,779
Other reserves 65,553 40,352
Retained earnings 82,774 118,954
-------- --------
Total equity 215,006 225,714
======== ========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2020
Other reserves
Foreign
Share
Investment based currency
Investment
Share Share Merger Warrant revaluation payment translation Special Treasury in Retained Total
capital premium reserve reserve reserve reserve reserve reserve Shares own shares earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------- -------- -------- -------- ------------ --------- ------------ -------- --------- ----------- --------- ---------
Balance at 1
January 2019 3,629 62,779 29,134 143 (198) 4,159 16,016 632 - (2,601) 104,415 218,108
Profit for the
year - - - - - - - - - - 28,995 28,995
Other
comprehensive
income:
Changes in
fair value of
equity
investments
held at fair
value through
other
comprehensive
income
Valuation
movement
taken to
equity - - - - 800 - - - - - - 800
Deferred
tax - - - - (22) - - - - - - (22)
Foreign
currency
translation - - - - - - (8,703) - - - - (8,703)
Total
comprehensive
profit - - - - 778 - (8,703) - - - 28,995 21,070
-------- -------- -------- -------- ------------ --------- ------------ -------- --------- ----------- --------- ---------
Transferred to
retained
earnings on
disposal - - - - 12 - - - - (12) -
Dividends - - - - - - - - - (14,444) (14,444)
Value of
employee
services - - - - - 980 - - - - 980
Total
transactions
with owners
of the
company - - - - 12 980 - - - (14,456) (13,464)
-------- -------- -------- -------- ------------ --------- ------------ -------- --------- ----------- --------- ---------
Balance at 31
December 2019 3,629 62,779 29,134 143 592 5,139 7,313 632 - (2,601) 118,954 225,714
======== ======== ======== ======== ============ ========= ============ ======== ========= =========== ========= =========
Balance at 1
January 2020 3,629 62,779 29,134 143 592 5,139 7,313 632 - (2,601) 118,954 225,714
Loss for the
year - - - - - - - - - - (18,599) (18,599)
Other
comprehensive
income:
Changes in
fair value of
equity
investments
held at fair
value through
other
comprehensive
income
Valuation
movement
taken to
equity - - - - 25,488 - - - - - - 25,488
Deferred tax - - - - (2,182) - - - - - - (2,182)
Foreign
currency
translation - - - - - - 5,396 - - - - 5,396
------------
Total
comprehensive
profit - - - - 23,306 - 5,396 - - - (18,599) 10,103
-------- -------- -------- -------- ------------ --------- ------------ -------- --------- ----------- --------- ---------
Transferred to
retained
earnings on
disposal - - - - (4,998) - - - - - 4,998 -
Dividends - - - - - - - - - - (16,707) (16,707)
Issue of
ordinary
shares 6 358 - - - - - - - - - 364
Shares held in
treasury (93) - - - - - - - 93 - (4,999) (4,999)
Value of
employee
services - - - - - (31) - - - 1,435 (873) 531
Total
transactions
with owners
of the
company (87) 358 - - (4,998) (31) - - 93 1,435 (17,581) (20,811)
-------- -------- -------- -------- ------------ --------- ------------ -------- --------- ----------- --------- ---------
Balance at 31
December 2020 3,542 63,137 29,134 143 18,900 5,108 12,709 632 93 (1,166) 82,774 215,006
======== ======== ======== ======== ============ ========= ============ ======== ========= =========== ========= =========
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020
Group
2020 2019
GBP'000 GBP'000
Cash flows from operating activities
(Loss)/Profit before taxation (27,205) 37,635
Adjustments for:
Finance income (116) (34)
Finance costs 2,324 1,337
Net foreign exchange losses/(gains) 381 (2,703)
Other losses/(income) 28 480
Impairment of royalty and exploration intangible assets 3,352 1,367
Revaluation of royalty financial instruments (883) (2,478)
Royalties due or received from royalty financial instruments 2,308 2,166
Revaluation of coal royalties (Kestrel) 44,204 9,215
Depreciation of property, plant and equipment 204 224
Amortisation of royalty intangible assets 5,522 3,777
Amortisation of deferred acquisition costs 13 13
Share based payment 293 1,114
--------- ---------
Operating cash flows before movement in working capital 30,425 52,113
(Increase)/Decrease in trade and other receivables (1,444) 2,106
(Decrease)/Increase in trade and other payables (478) 718
--------- ---------
Cash generated from operations 28,503 54,937
Income taxes paid (10,996) (7,851)
Net cash generated from operating activities 17,507 47,086
--------- ---------
Cash flows from investing activities
Proceeds on disposal of mining and exploration interests 4,212 321
Purchase of mining and exploration interests (1,759) -
Purchase of property, plant and equipment (8) (9)
Purchase of royalty and exploration intangibles (1,216) (42,284)
Purchases of royalty financial instruments (5,679) (20,287)
Proceed on disposal of royalty financial instruments 15,170 -
Repayments under commodity related financing agreements 688 1,577
Prepaid acquisition costs (847) -
Finance income 116 34
Net cash generated from/(used in) investing activities 10,677 (60,648)
--------- ---------
Cash flows from financing activities
Drawdown of revolving credit facility 18,300 44,951
Repayment of revolving credit facility (9,160) (14,225)
Proceeds from issue of share capital 364 -
Share buyback payments (4,999) -
Dividends paid (16,707) (14,444)
Lease payments (196) (199)
Finance costs (1,900) (1,074)
Net cash (used in)/from financing activities (14,298) 15,009
--------- ---------
Net increase/(decrease) in cash and cash equivalents 13,886 1,447
Cash and cash equivalents at beginning of period 7,597 5,223
--------- ---------
Effect of foreign exchange rates (1,327) 927
Cash and cash equivalents at end of period 20,156 7,597
========= =========
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