Anglo Pacific: mining royalty

The central reason for this can be explained by Anglo’s twin mandates: to invest and return cash to shareholders. This might sound like the strategy of most mature miners, but Anglo has bucked the two-year trend among the constituents of the benchmark index by investing through the cycle. In 2018, this meant committing £29.4m to new royalty assets, in addition to a 17 per cent hike in the total dividend to £15.9m. But despite this higher outlay, the balance sheet has only strengthened. By the end of March, the net cash position stood at £18.7m – more than double the amount at the end of 2017 listed in the table below. Add that to a $40m (£30m) revolving credit facility, and Anglo has lots of firepower for its next deals.

Then again, size isn’t everything. Last month, in keeping with a history of investing in small development-stage opportunities, Anglo acquired a 0.5 per cent net smelter return royalty over the Cañariaco copper project in Peru for $1m in shares. The investment certainly looks long-sighted. Although Cañariaco’s economics suggest it would have no shortage of potential backers, building the thing will take many years and at least $1.4bn. Canadian minnow and 100 per cent owner Candente Copper (TSX:DNT) doesn’t have that kind of cash, but assuming the mine is one day constructed, Anglo could find itself with a title to millions of dollars of gross annual royalties from potential annual output of 262m pounds of copper.

A larger, nearer-term prospect was signed last September, when Anglo paid $2m to secure a 1 per cent revenue royalty over the Piauí nickel-cobalt project in north-east Brazil, retaining the option to expand the royalty by 3-4.5 per cent, for up to $70m. As such, the deal is structured to give Anglo an equity-like, low-risk carry in a low-cost battery metals project, in exchange for a staggered financing on guaranteed terms. On paper, there’s not much to fault.

The development, which owner (and potential Aim debutant) Brazilian Nickel hopes will be up and running by 2021, is an example of Anglo’s focus on highly sought-after or undersupplied commodities. This should be apparent when Anglo publishes its half-year results, which will include a growing contribution from a 2 per cent smelter output royalty on Largo Resources’ (TSX:LGO) Maracás Menchen vanadium mine, also in Brazil. Like cobalt, the price of vanadium pentoxide has been soaring, meaning Anglo’s first-half income stream could hit the £2m accrued for the whole of last year – all for a perspicacious $22m outlay four years ago.

Other deals have been more successful. The £26m toll mining agreement signed with Denison Mines (TSX:DML) last February netted Anglo £5m before the end of 2017, and the highly lucrative Kestrel mine tenement – which contributes the majority of income – could soon super-charge income if reports that its new owners want to double production prove correct.