Anglo Pacific times the cycle perfectly

Incoming Anglo Pacific (APF) chief executive Marc Bishop Lafleche has a unique take on recycling: he said his company’s funnelling of cash flows from the Kestrel metallurgical coal mine in Australia, on which it has a sliding scale royalty dependent on coal prices, represents “recycling” of capital towards mines that will feed in to the energy transition. Anglo Pacific owns the rights to a proportion of either production or revenue at several mines, through royalties or streaming agreements. 

Last year’s earnings back up the recycling angle. Kestrel brought in $48mn (£37mn) in 2021, double 2020, while the new cobalt stream at the Voisey’s Bay nickel mine in Canada brought in $16.5mn. Met coal – the type used for steelmaking – prices hit new record highs last year, and have surged since to over $600 a tonne, compared with $150 a tonne a year ago. Anglo Pacific is barely exposed to the cost increases that are trimming the profits of the actual miners as well, given its business model. 

Cobalt has also doubled in price in the past year thanks to demand from the electric vehicle sector. At current prices, Anglo is able to knock off around $30mn a quarter of borrowings, with a net cash position possible later in the year. Bishop Lafleche, who replaces Julian Treger on 1 April, said the priority was putting the company’s capital into new royalties and streams rather than a swift uptick to the payout, however, even with the dividend lagging its previous level.

Peel Hunt sees the 2021 numbers as a high point despite the current frothy commodity environment, with adjusted earnings per share flat for 2022 at 20¢, the same as last year, before falling a quarter to 15.7¢ in 2023. Even with this drop we are bullish on the company. Buy. 

Last IC View: Buy, 126p, 25 Aug 2021