TIDMAPF
RNS Number : 9555X
Anglo Pacific Group PLC
16 August 2018
News Release
16 August 2018
Anglo Pacific Group PLC
Purchase of a 4.25% shareholding in Labrador Iron Ore Royalty
Corp.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014 (as amended)
Anglo Pacific Group PLC ("Anglo Pacific", the "Company") (LSE:
APF, TSX: APY) is pleased to announce that it has acquired a 4.25%
shareholding in Labrador Iron Ore Royalty Corp ("LIORC") at an
investment cost of US$50 million (C$65.5 million, GBP38 million).
LIORC is listed on the Toronto stock exchange (TSX:LIF) and has a
market capitalisation of approximately C$1.5 billion.
LIORC is structured as a passive flow-through entity for a 7%
Gross Revenue Royalty ("GRR") and a C$0.10 per tonne commission on
all iron ore products sold by the Iron Ore Company of Canada
("IOC"). In addition, LIORC has a 15.1% equity position in IOC.
LIORC has a policy of paying quarterly cash dividends to the
maximum extent possible subject to the maintenance of appropriate
levels of working capital. LIORC declared dividend payments of
C$169.6 million in 2017, and currently has an historical 2017
dividend yield of 11%.
IOC is operated by Rio Tinto, with mining and processing
operations located in the area of Labrador City, Canada. IOC is one
of Canada's largest iron ore producers, and is among the top five
global producers of seaborne iron ore pellets. IOC also sells an
iron ore concentrate product based on the 65% Fe index. The current
differential between the Platts indices for 65% Fe concentrate and
62% Fe concentrate has widened to US$27 per tonne, the highest
spread in recent years.
Anglo Pacific views this investment as an attractive addition to
its portfolio, providing exposure to the premium end of the iron
ore concentrate and high margin pellet markets, on terms which are
immediately accretive. Anglo Pacific will report LIORC dividends
received, which are funded by the 7% GRR receipts proceeds and IOC
dividends paid to LIORC, as royalty related revenue reflecting the
long-term nature of the investment.
Highlights of the transaction:
-- Indirect exposure to a 7% GRR over a world-class producing mine;
o Expected to be immediately accretive to adjusted earnings and
cash flow per share;
-- Further diversifies Anglo Pacific's income profile, commodity and geographic exposure;
o LIORC cash flow paid out as shareholder dividends to the
maximum extent possible;
o Exposure to high quality 65% iron ore concentrate and higher
margin pellet products;
o Iron ore exposure increased to 20% from 5%, and Kestrel coking
coal exposure reduced to 41% from 49% of the Company's royalty
related assets; (1)
o Increased North American footprint and exposure to Tier 1
mining jurisdictions;
-- IOC produces premium products with low alumina, silica and phosphorous content;
o Environmental policy in China is driving structural change in
the Chinese steel industry and demand for high quality iron ore
products;
o Attractive market outlook for high grade iron ore concentrates
and pellets;
-- Long IOC mine life with extension potential;
o Reserves support a 25-year mine life at planned IOC production
rates;
o IOC has sufficient mineral inventory to support future
expansion options;
-- Operated by mining major Rio Tinto in a premier mining jurisdiction;
o IOC has been producing for over 50 years, demonstrating its
ability to operate through the cycle;
-- Future optionality;
o Liquid asset with potential for underlying growth, as well as
flexibility to sell down or increase indirect exposure to LIORC's
7% GRR and stake in IOC.
IOC has ore reserves sufficient for approximately 25 years at
current production rates with additional resources of a greater
magnitude. IOC's primary products include standard and low silica
acid pellets, flux pellets, direct reduction pellets and iron ore
concentrates. Saleable products are railed 418 Km by a wholly owned
IOC subsidiary to port facilities located in Sept-Îles, Quebec.
From there, the products are shipped to markets throughout North
America, Europe, the Middle East and the Asia-Pacific region.
Industrial action resulted in the suspension of IOC operations
between 27 March 2018 and 28 May 2018. A new five-year collective
agreement is now in place and the ramp-up to normal IOC production
rates was achieved by the end of June 2018.
In June 2018, LIORC Directors announced the intention to call a
special meeting to seek shareholder approval to change LIORC
Articles in order to permit new royalty acquisitions, which would
require 75% shareholder vote in favour. The LIORC Board has stated
that an acquisition would only proceed in the event it is in-line
with LIORC's existing income distribution and balance sheet
objectives. At this time, the special meeting date has not been
called, and no date has been set.
IOC's 2017 sales totalled 19.0 Mt, comprised of 10.4 Mt of iron
ore pellets and 8.6 Mt of iron ore concentrate. Production in 2017
was 10.5 Mt of pellets and 8.5 Mt of iron ore concentrate for sale.
Rio Tinto reported IOC 2017 gross revenue of US$1.9 billion,
earnings before interest, tax, depreciation and amortization
("EBITDA") of US$0.8 billion, for an EBITDA margin of approximately
41%.
The transaction was funded with cash on-hand and a GBP17.3
million draw down on the Company's revolving credit facility. Anglo
Pacific expects to be in a net cash position by year-end 2018
absent any other royalty acquisitions.
Commenting on the investment, Julian Treger, Chief Executive
Officer of Anglo Pacific Group, said:
"This transaction continues Anglo Pacific's growth trajectory,
and is in-line with Anglo Pacific's stated strategy of diversifying
its sources of income and commodity exposure.
The transaction is expected to be immediately accretive to
adjusted earnings and free cash flow per share, and based on Anglo
Pacific's current shareholding and LIORC broker consensus 2019
dividend forecasts (Bloomberg), the Company expects to receive
between C$4.7 - C$5.7 million of royalty related revenue during the
2019 calendar year via LIORC dividends.
China currently produces half of the world's steel and the
Chinese Government's current environmental policies aimed at
reducing pollution are driving structural changes in the Chinese
steel industry, which in turn are driving the demand for high
quality iron ore products. Sinter usage, which is high in China
relative to North American and European steel industries, is
amongst the largest generator of emissions within the Chinese steel
sector's production process. Going forward, we expect sustained
demand for high grade iron ore concentrates with low alumina and
silica contents, and an increase in pellets usage within the
typical Chinese blast furnace load mix.
IOC is a top five global producer of seaborne iron ore pellets,
has a reserve based mine-life in excess of two decades, and has
both production expansion and mine life extension potential. This
investment ticks the boxes of our royalty investment criteria, and
positions Anglo Pacific to benefit from the positive outlook for
high quality iron ore products, as well as from pellet premiums
which we expect to remain elevated in the near-term."
Analyst Call
There will be an analyst presentation via conference call at
9:30am (BST) on 16 August 2018. The presentation will be hosted by
Julian Treger (CEO), Kevin Flynn (CFO) and Marc Bishop Lafleche
(Head of Development).
Dial in details for the call are as follows:
Location you are dialling in from Number you should dial
United Kingdom (toll free) 0800 358 9473
--------------------------------
United Kingdom (Local) +44 (0) 333 300 0804
--------------------------------
All other locations please refer to the link below
http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
Participant Access Code: 13129694#
The webcast cast presentation can be followed at the following
URL:
https://event.on24.com/wcc/r/1819246-1/391074890E19B7F6F9749AB4BCB7CDFD
For further information:
Anglo Pacific Group PLC
Julian Treger - Chief Executive Officer
Kevin Flynn - Chief Financial Officer and
Company Secretary +44 (0) 20 3435 7400
Website: www.anglopacificgroup.com
BMO Capital Markets Limited +44 (0) 20 7664 8020
Jeffrey Couch / Tom Rider
Canaccord Genuity Limited +44 (0) 20 7523 8000
Martin Davison / James Asensio
Peel Hunt LLP +44 (0) 20 7418 8900
Ross Allister / James Bavister
Capital Market Communications Limited (Camarco) +44 (0) 20 3757 4997
Gordon Poole/ Owen Roberts / James Crothers
Labrador Iron Ore Royalty Company (2)
Overview
LIORC is listed on the Toronto Stock Exchange (TSX:LIF), and its
operating cash flow is sourced entirely from its entitlement to a
7% GRR and a C$0.10 per tonne commission on products sold, as well
as dividends received from its 15.1% equity interest in IOC.
LIORC has been involved in Labrador West for 80 years. Under a
1938 Statutory Agreement with the Canadian province of Newfoundland
and Labrador, a predecessor company to LIORC, Labrador Mining and
Exploration Limited ("LM&E"), was granted extensive exploration
and mining rights in Labrador West. LM&E discovered the iron
ore bodies that now constitute the mine operated by IOC. LM&E
received grants of leases and licences under the Statutory
Agreement. It also received a grant of surface rights to establish
the town site that became Labrador City. LM&E sublet the leases
to IOC. IOC, with major steel companies as original shareholders,
built the infrastructure, mine, railway and port.
Royalty Entitlements
LIORC holds certain leases and licences covering approximately
18,200 hectares of land near Labrador City. The entirety of IOC
mining operations occur within lands subleased from LIORC. In
return, IOC pays LIORC a 7% gross overriding royalty on all sales
of iron ore products produced from these subleased lands. A 20% tax
on the royalty is payable to the Government of Newfoundland and
Labrador. In 2017, LIORC received C$125.1 million (2016 - C$90.5
million) in relation to its 7% GRR net of the 20% provincial
tax.
A wholly owned LIORC subsidiary is also entitled to receive a
commission of C$0.10 per tonne on the products produced and sold by
IOC. In 2017, LIORC received a total of C$1.9 million in
commissions (2016 - C$1.8 million).
IOC Equity Stake
In addition to its royalty interests, LIORC holds a 15.1% equity
interest in IOC. The other shareholders of IOC are Rio Tinto
Limited with 58.72% and Mitsubishi Corporation with 26.18%.
Historical Sources of LIORC Cash Flow
LIORC's source of cash flow for the past five years is as
follows:
Years Ended December 31,
---------------------------------
(in C$ millions) 2013 2014 2015 2016 2017
------------------------ ----- ----- ----- ----- -----
7% GRR (1) 110 93 80 90 125
----- ----- ----- ----- -----
C$0.10/t royalty 1 1 2 2 2
----- ----- ----- ----- -----
IOC dividends received 40 48 0 15 77
------------------------ ----- ----- ----- ----- -----
Note:
1. Historical 7% GRR receipts are presented net of 20% Newfoundland royalty tax.
Iron Ore Company of Canada (2)
Overview
IOC was incorporated under the laws of the State of Delaware on
18 November 1949. IOC commenced production at Labrador City, in the
Canadian province of Newfoundland and Labrador in 1962. IOC
produces all of its iron ore from the lands leased from LIORC. Iron
ore is used in blast furnaces to produce pig iron or in direct
reduction facilities and is subsequently transformed into
steel.
IOC's principal business is mining the iron ore present on lands
leased from LIORC and operating the associated mining facilities
and plants required for the production of iron ore concentrate and
pellets. In normal circumstances, IOC operates its facilities 24
hours a day on a year-round basis. IOC has the nominal capacity to
process up to 55 Mt of crude ore annually. In 2017, a total of 46.5
Mt of crude ore was mined from four mining areas. IOC's
concentrating plant has a nominal capacity to produce approximately
23.3 Mt of iron ore concentrate per annum, for either direct
shipping or as feed to IOC's pellet plant. In 2017, 20.2 Mt of iron
ore concentrate feed was produced.
IOC's pellet plant has a nominal capacity of approximately 12.5
Mt of iron ore pellets per annum based its current product mix. In
2017, IOC produced 8.5 Mt of concentrate for sale and 10.5 Mt of
pellets. IOC's saleable products are railed by its wholly owned
subsidiary Quebec North Shore & Labrador Railway Company, Inc.
("QNS&L") to the Sept-Îles port, where IOC also owns and
operates a marine terminal with materials storage and docking
facilities. IOC products are shipped to markets throughout the
world on a year-round basis.
Mineral Reserves and Resources
The iron ore deposits in the Labrador City area occur as
specular hematite and magnetite, generally in the ratio of 65:35.
The mineral reserve and mineral resource deposits, with an average
grade of approximately 38% iron, occupy the middle iron unit of the
Sokoman formation overlain by waste rock. The iron ore mineral
reserve and resource deposits at the Mine are close to the surface
thereby facilitating open pit mining.
The total estimated iron ore mineral reserves and resources at
the Mine at 31 December 2017, as disclosed by Rio Tinto, are as
follows:
Quantity Grade
Category (1) (2) (million tonnes) (% Fe)
------------------------ ------------------ --------
Proven Reserves 568 38
------------------ --------
Probable Reserves 733 38
------------------ --------
Total Mineral Reserves 1,301 38
------------------ --------
Measured Resources 166 41
------------------ --------
Indicated Resources 742 39
------------------ --------
Inferred Resources 1,025 38
------------------------ ------------------ --------
Notes:
1. IOC Ore Reserves and Mineral Resources are taken from Rio
Tinto's 2017 Annual Report and are reported in accordance with the
Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves, December 2012 (the JORC Code).
2. Mineral Resources are reported on an in situ dry basis and exclude Mineral Reserves.
Marketing and Sales (Iron Ore Products)
IOC's primary products include standard and low silica acid
pellets, flux pellets, direct reduction pellets and iron ore
concentrates. Acid pellets can be charged directly into blast
furnaces without further processing. Flux pellets are similar to
acid pellets, with the exception that more dolomite and/or
limestone is added to the pellets before pelletization to improve
metallurgical properties and increase the efficiency of the
operation of a blast furnace.
Iron ore concentrates must be agglomerated, typically at the
sinter plants, before being charged into the furnaces. This is
mainly because of the permeability requirement of the blast
furnaces. There is considerable variation in the burden mix
(proportion of iron ore lump, pellets and sinter) applied to blast
furnaces worldwide. Typical blast furnace burden mix in North
America shows 90-100% pellets while the rest of the world uses
sinter as a dominant burden charge.
Direct reduction pellets with lower silica content are used in
the direct reduction processes to produce sponge iron which is an
alternative process route in conversion of iron to steel. The
direct reduction process is primarily based on the use of natural
gas and has become increasingly common in countries with access to
inexpensive natural gas.
Historical IOC Production
IOC production during the prior five-year period is as
follows:
Years Ended 31 December,
---------------------------------
(in million tonnes) 2013 2014 2015 2016 2017
---------------------------- ----- ----- ----- ----- -----
Total feed concentrate (1) 16.2 15.8 18.7 19.2 20.2
----- ----- ----- ----- -----
Pellets 8.6 8.7 9.3 9.8 10.5
----- ----- ----- ----- -----
Concentrate for sale 6.8 6.0 8.4 8.4 8.5
---------------------------- ----- ----- ----- ----- -----
Note:
1. The total volume of pellets and concentrate for sale does not
equal the total feed concentrate due to changes in inventory and
losses of material in the pelletizing operations.
Mine
Mining is carried out using open pit techniques. Broken ore is
loaded by electric shovels and transported by truck to one of three
underground loading pockets where the ore is transferred to
unmanned automatic trains or to a primary crusher and overland
conveyor. Currently the mine and the automatic train and conveyor
have a nominal capacity to deliver up to 55 Mt per annum of ore to
the concentrator.
Concentrator
IOC employs an entirely mechanical process to separate the ore
from the waste rock. The crushed ore is ground to a size of
approximately 1.0 mm at which point it is liberated from the
associated undesirable minerals.
Ground ore is then concentrated in the spiral plant using
gravity spirals to increase the iron content from 38% to
approximately 65%. A magnetic separation plant extracts magnetite
from the spiral plant's tailings, while a hematite recovery plant
recovers fine particles of hematite from the tailings of the
magnetic separation plant. A flotation plant reduces silica to
lower levels than can be achieved in the concentrator alone.
In the period 2008 to 2014, IOC undertook expansion programs to
increase its annual concentrate production. After completion of
commissioning and optimization of the production system, IOC's
nominal concentrate production capacity is approximately 23.3 Mt
per annum, subject to ore quality.
In 2017, concentrate production was approximately 20.2 Mt, and
approximately 42% of IOC's concentrate production was sold as
concentrate while the remaining production was converted into
pellets at IOC's pelletizing plant before sale. IOC seeks to
maximise margins by optimising its product offerings of concentrate
for sale and pellets according to the changing market pricing.
Pellet Plant
Iron ore concentrate is received from the concentrating
operations where it is ground in one of 11 ball mills. The ground
concentrate, after being filtered, is mixed with bentonite, which
acts as a binding agent and, in the case of fluxed pellets,
limestone and/or dolomite is added. The ground concentrate and
other additive mixtures are formed into balls 9.5 mm to 12.5 mm in
diameter that are dried to remove moisture and then fired. Once
cooled, the finished iron ore pellets are conveyed to storage for
shipping by rail to IOC's shipping terminal facilities in
Sept-Îles.
IOC's Carol Lake pellet plant has the nominal capacity to
produce 12.5 Mt per annum at the current product mix, with actual
capacity varying somewhat with the product mix. The plant produces
three primary products: acid pellets, fluxed pellets and direct
reduction pellets, with a silica content of 1.2% to 4.7%. In 2017,
10.5 Mt of pellets were produced.
Infrastructure
IOC's wholly-owned subsidiary QNS&L rails IOC's products 418
Km from IOC's mining and production operations in Labrador City to
its marine terminal and materials handling facility in Sept-Îles,
operating up to eight iron ore trains.
In addition to hauling IOC's iron ore production, in 2017
QNS&L also hauled iron ore production from Tata Steel Minerals
Canada Limited.
The Sept-Îles terminal, operating year-round, can handle both
lake and ocean-going vessels with a capacity of between 25,000 and
255,000 tonnes. In 2017, IOC's terminal processed 160 vessels, of
which 1 was a lake-going vessel and 159 were ocean-going
vessels.
Community Support, Health and Safety, and Environmental
Responsibility
Five identified Indigenous groups in Labrador and Quebec claim
and/or assert Indigenous rights and/or other interests in the
regions where IOC has its operations. IOC engages with all five
Indigenous groups and is committed to sustainability, diversity and
supporting Indigenous peoples through employment and business
opportunities. IOC signed agreements with Innu Nation and
NunatuKavut Community Council in 2014.
IOC's annual Social and Environment Report provides information
on IOC's performance in areas related to health, safety and
community relations. The report outlines IOC's comprehensive
program directed at achieving environmental protection within the
governing framework of sustainable development.
IOC has a long-term tailings management plan and has developed
wetlands on the existing tailings landform. IOC also has programs
in place to reduce greenhouse gas emissions, particulate emissions,
energy consumption and freshwater use.
IOC's All Injury Frequency Rate increased from 0.73 in 2016 to
0.91 in 2017. Safety is the first priority for IOC and the company
is taking special measures to improve safety performance.
IOC is vigorously pursuing its objectives of attaining zero harm
to both safety and health of its employees and reducing its
environmental footprint. IOC hopes to achieve this through a step
change in health and safety performance, environmental compliance
and stewardship and a focus on sustainable development.
For more information, please visit www.labradorironore.com.
1) Anglo Pacific royalty related assets as of 31 December 2017,
adjusted for LIORC stake investment cost of GBP38 million.
2) LIORC 2017 Annual Information Form, LIORC 2017 Annual Report.
About the Company
Anglo Pacific Group PLC is a global natural resources royalty
and streaming company. The Company's strategy is to develop a
leading international diversified royalty and streaming company
with a portfolio centred on base metals and bulk materials,
focusing on accelerating income growth through acquiring royalties
and streams on projects that are currently cash flow generating or
are expected to be within the next 24 months, as well as investment
in earlier stage projects. It is a continuing policy of the Company
to pay a substantial portion of these royalty and stream revenues
to shareholders as dividends.
Cautionary statement on forward-looking statements and related
information
Certain information contained in this announcement, including
any information as to future financial or operating performance and
other statements that express management's expectation or estimates
of future performance, constitute "forward looking statements". The
words "expects", "anticipates", "plans", "believes", "estimates",
"seeks", "intends", "targets", "projects", "forecasts",
"accretion", or negative versions thereof and other similar
expressions identify forward-looking statements. Forward-looking
statements are necessarily based upon a number of estimates and
assumptions that, while considered reasonable by management, are
inherently subject to significant business, economic and
competitive uncertainties and contingencies. Further,
forward-looking statements are not guarantees of future performance
and involve risks and uncertainties which could cause actual
results to differ materially from those anticipated, estimated or
intended in the forward-looking statements. The material
assumptions and risks relevant to the forward-looking statements in
this announcement include, but are not limited to: stability of the
global economy; stability of local government and legislative
background; continuing of ongoing operations at the properties
underlying the Group's portfolio of royalties in a manner
consistent with past practice; accuracy of public statements and
disclosures (including feasibility studies and estimates of
reserve, resource, production, grades, mine life, and cash cost)
made by the owners and operators of such underlying properties;
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 and investments; no
material adverse change in foreign exchange exposure; no adverse
development in respect of any 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. If
any such risks actually occur, they could materially adversely
affect the Group's business, financial condition or results of
operations. For additional information with respect to such risks
and uncertainties, please refer to the "Principal Risks and
Uncertainties" section of our most recent Annual Report on the
Group's website www.anglopacificgroup.com. Readers are cautioned to
consider these and other factors, uncertainties and potential
events carefully and not to put undue reliance on forward-looking
statements. The forward-looking statements contained in this
announcement are made as of the date of this announcement only and
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.
Third party information
As a royalty holder, the Group often has limited, if any, access
to non-public scientific and technical information in respect of
the properties underlying its portfolio of royalties, or such
information is subject to confidentiality provisions. As such, in
preparing this announcement, the Group has largely relied upon the
public disclosures of the owners and operators of the properties
underlying its portfolio of royalties, as available at the date of
this announcement.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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