Currently viewing Global edition

Anglo Pacific quadruples iron ore royalty exposure

Anglo Pacific Group (LSE:APF) has spent US$50 million on upping its iron ore exposure.
Anglo Pacific quadruples iron ore royalty exposure Anglo Pacific quadruples iron ore royalty exposure Anglo Pacific quadruples iron ore royalty exposure Anglo Pacific quadruples iron ore royalty exposure Anglo Pacific quadruples iron ore royalty exposure

Anglo Pacific now has access to a percentage royalty from products sold by the Iron Ore Company of Canada

Staff reporter

With that spend, Anglo Pacific has bought itself a percentage of gross royalty revenue (GRR) from one of Canada's largest iron ore producers by acquiring a 4.25% shareholding in the TSX-listed Labrador Iron Ore Royalty Corp (LIORC)

LIORC is a passive flow-through entity that is linked to the Rio Tinto-run Iron Ore Company of Canada (IOC), receiving a 7% GRR and a C10c (US7.6c) per tonne commission on all the sold iron ore products.

It also has a 15.1% equity position in IOC, which sells 65% iron ore concentrate and higher margin pellet products.

Anglo Pacific said the investment diversified its income profile, commodity and geographic exposure, by increasing its North American footprint.

It added the acquisition provided "exposure to the premium-end of the iron ore concentrate and high margin pellet markets, on immediately accretive terms"

Through the deal, Anglo Pacific has increased its iron ore exposure to 20% from 5%, while its Kestrel coking coal exposure dropped to 41% from 49% of its royalty-related assets.

Anglo Pacific CEO Julian Treger said the company expected to receive C$4.7-5.7 million of royalty-related revenue during the 2019 calendar year via LIORC dividends, based on its current shareholding and LIORC broker consensus 2019 dividend forecasts from Bloomberg.

LIORC has a quarterly cash dividend policy, handing back C$169.6 million in 2017 and has an historical 2017 dividend yield of around 11%.

Anglo Pacific said it would report LIORC dividends received, which were 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.

The company plans to fund the transaction with cash on-hand and a £17.3 million (US$22 million) draw down on its revolving credit facility.

It expected to be in a net cash position by the end of 2018 as long as it made no other royalty acquisitions.

Anglo Pacific's shares were up 1.28% Friday to £1.27 (US$1.61) each.